Citi Gives Color On Health Management Associates Following Investor Day

Health Management Associates' HMA specific re-contracting initiatives generated $6m of savings in 2010. Mngt expects >$6m of annualized savings in 2011. Specifically, the company will renegotiate contracts with 3 of its 4 cardio vendors and 2 ortho vendors. Increased physician employment has revealed a "chink" in the vendors' "armor". HMA will expand its spine capitation contracts to regions 1-4. HMA expects SS supply expense to decline as a percentage of revs. We model flat yty due to higher initial costs at acquired facilities. HMA paid $138m in 12/09 to purchase 493 bed Sparks Regional Medical Center in Fort Smith, AR. The acquisition generated approximately $250m of revenues in 2009 at a break-even EBITDA margin. HMA is on track to generate a 4- year cash on cash return. 2010 goals included +3-5% admissions growth and 10%+ outpatient visit growth, both of which were exceeded. Sparks operates the busiest ER in the state of AR and according to HMA, will soon add the first PET scanner in the state. Future expansion plans include new surgical suites, rad/onc and a cardiovascular center of excellence. Citi has a Buy rating and $12 PT on HMA HMA closed Monday at $11.41