Rural hospital operator Health Management Associates (NYSE:HMA) hit a 52-week low today after it reduced guidance for the quarter and full year. Will HMA be able to recover to its fast-growing past, or is the stock price destined to flatline near $20 per share?

Recent conditions remain tough in the hospital industry. The majority of hospital stocks are stuck near their lows for the year, including that of another rural operator, LifePoint Hospitals (NASDAQ:LPNT). HMA now expects to report 2006 earnings of $1.30 to $1.34 per share (analysts had projected $1.43 for the year), for an almost 10% reduction. HMA blamed the drop on weak patient volumes and unpaid bills from uninsured patients, conditions that have plagued hospital operators for some time now. Even the $250 million share buyback plan that HMA announced did little to comfort investors.

I initially invested in HMA, as opposed to industry leader and Berkshire Hathaway investment HCA (NYSE:HCA), because rural hospitals are generally considered more profitable. They tend to face less competition compared to facilities in larger metropolitan areas. In addition, HMA's management has a reputation for improving the profitability of the hospitals it purchases through additional services and reduced costs.

HMA does have higher operating margins than the industry average, but it's also having trouble with patients. The uninsured are unable to pay, while the insured appear to be holding off on procedures to avoid paying higher up-front or co-payment charges. I'm also concerned that this instability is occurring during a relatively strong economy; what happens if the domestic market heads south? Management is still buying outside hospitals, but given the industry's overall weakness, it may likely find it harder to enhance operating margins.

HMA still has a strong track record of double-digit sales and earnings growth, but the past couple of years have been more of an uphill battle. I'm consoled that the company should be able to cover most of the unpaid bills from its uninsured clients, and that operating cash flow continues to be strong. However, internal growth has been weak, leaving HMA dependent on riskier acquisition growth, and the hospital industry's high levels of regulation create high capex needs. It could certainly be worse -- just check out Tenet Healthcare's (NYSE:THC) stock chart -- but if conditions don't improve soon, I may have to give up on HMA.

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Fool contributor Ryan Fuhrmann is long shares of HMA but has no financial interest in any other company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.