Hospital operator Community Health Systems Inc. slashed its second-quarter earnings forecast and said it was served with an additional subpoena from the government as part of an investigation into Medicare admissions.
The double dose of bad news sent shares of Community Health and its peers sharply lower in after-hours trading.
The Tennessee company said the disappointing earnings report was its first significant miss since the third quarter of 2006. Community Health blamed the lower outlook on weak patient volume, especially in May and June; higher-than-anticipated care that wasn't reimbursed; and a shift toward patients with less-profitable health coverage.
Community Health now expects second-quarter revenue of $3.24 billion, below the $3.37 billion estimate from analysts polled by Thomson Reuters. The rural hospital operator also sees pretax profit of $65 million, sharply below analysts' projection of $151 million. Adjusted earnings before interest, taxes, depreciation and amortization is expected to be $414 million, compared with $483 million for the year-ago period.
The disappointing results come as investors have speculated that the hospital sector might be prime for consolidation. On that topic, Community Health executives have suggested that they might be an interested buyer.
Hospital admissions have been uneven across the sector in recent quarters as concerns over the economy and employment moved some Americans to put off medical procedures. However, the expected increase next year in the number of patients with health insurance—as a result of the U.S. health-care overhaul law—is seen as a possible catalyst.
Community Health said its estimated second-quarter operating results reflect a 5.1% decrease in total admissions and a 1.8% decline in adjusted admissions. On a comparable basis, the company said, admissions were down 5.7% and adjusted admissions decreased 2.6%.
The company expects to report its second-quarter results on July 29.
In after-hours trading, Community Health shares slumped 18% to $38.76. Also sliding were shares of Health Management Associates Inc., Tenet Healthcare Corp. and HCA Holdings Inc., all of which fell 3% or more. The declines comes as the largest publicly traded hospitals have had stock gains of 30% or more in 2013; Community Health is up 54% this year.
Community Health also said Thursday that the Justice Department's investigation into Medicare short-stay admissions from emergency departments is continuing and that it has been served with an additional subpoena.
The new subpoena seeks additional documents related to the admission of inpatients from its emergency departments and documents that support the factual refutations and defenses that the company has articulated during its discussions with the government. The company said many of the categories of documents were the same as those requested in its April 2011 subpoena, but the request is being broadened to additional custodians and locations.
The government also served civil investigative demands to interview two current company employees—one division president and one senior vice president.
Community Health said it would continue to cooperate with the government.
In April, Community Health reported its first-quarter earnings rose 4.9% as it benefited from slightly stronger revenue despite weaker admissions.
—George Stahl contributed to this article.
Write to Nathalie Tadena at nathalie.tadena@dowjones.com
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