Four Wall Street analysts addressed a capacity crowd yesterday in the Nashville Health Care Council's semi-annual review of the healthcare landscape. Their comments centered on a few key topics, including:
- The continuing woes of the general acute-care hospital sector. Bad debt on care for the uninsured is not just going to continue as a problem in 2007, said most of the analysts -- it's going to keep getting worse. Adam Feinstein of Lehman Brothers said internal forecasts at his firm call for bad debt expense on self-paying patients to grow by 12 to 15 percent in the hospital sector this year. "If I could wave a wand and change the world," opined John Ransom of Raymond James and Associates, "with self-pay, we would just book it at zero at the time of service" -- since hospital companies' estimates of what can be collected are invariably too high.
- The beauty of the behavioral sector. Psychiatric Solutions Inc. CEO Joey Jacobs sat at a table near the stage and veritably bathed in accolades from the assembled speakers. As Darren Lehrich of Deutsche Bank Securities noted, demand for mental health services is strong, capacity remains tight at behavioral facilities, pricing is firm and the Medicare reimbursement environment is favorable. With "just a handful of serious chain-based competitors in the field," Psych Solutions now being the largest among them, behavioral is a "healthy market," Lehrich said. He noted that healthy markets do attract competition, posing an eventual risk to the big players, and he cited local healthcare entrepreneur Ed Stack's privately held Behavioral Centers of America as one smaller contender "just starting to gain some momentum."
- No walk in the park for ambulatory surgery centers. Nashville is home to two publicly traded ASC developers, AmSurg and Symbion, as well as other surgery-center ventures. Ransom cited capacity growth as "the thing that worries me most" in the ASC sector, which offers low barriers to entry: "You find a couple of orthopedic guys, and you're good to go." The number of surgery centers grew by 8.9 percent last year and 6 percent the year before, he said. Nationwide, there will be more ASCs than hospitals by the end of 2007, Ransom predicts.
Challenged by moderator Wayne Smith, chairman and CEO of Cool Springs-based rural hospital operator Community Health Systems, the panelists concluded by revealing their favorite healthcare stock picks for 2007:
- Feinstein: Community Health Systems (a polite choice) and Psychiatric Solutions, which is also based in Franklin.
- Lehrich: Maryland's Dialysis Corp. of America and hospital operator Universal Health Services Inc., based in Pennsylvania.
- Frank Morgan of Jefferies & Co.: Milwaukee-based Assisted Living Concepts Inc., Capital Senior Living Corp. of Dallas, and the upcoming pharma spinoff of Louisville's Kindred Healthcare Inc.
- Ransom: CVS Corp., which is trying to buy Nashville's Caremark Rx., Psychiatric Solutions and Amedisys, a home health provider based in Baton Rouge, La. whose stock is likely to be affected one way or the other by an upcoming ruling from the Federal Centers for Medicare and Medicaid Services.