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Select Medical Corp. Reports Operating Results (10-Q)

August 12, 2010 | About:

10qk

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Select Medical Corp. (SEM) filed Quarterly Report for the period ended 2010-06-30.

Select Medical Corp. has a market cap of $1.11 billion; its shares were traded at around $6.94 with a P/E ratio of 12 and P/S ratio of 0.5. SEM is in the portfolios of Steven Cohen of SAC Capital Advisors.

Highlight of Business Operations:

For the three months ended June 30, 2010, our net operating revenues increased 3.6% to $579.9 million compared to $559.5 million for the three months ended June 30, 2009. This increase in net operating revenues resulted from a 4.3% increase in our specialty hospital net operating revenue and a 2.1% increase in our outpatient rehabilitation net operating revenue. The increase in our specialty hospital net operating revenue is principally due to the growth in the hospitals opened as of January 1, 2009 and operated by us throughout both periods and the hospitals acquired in 2009. The increase in our outpatient rehabilitation net operating revenue is due to an increase in both our contract services based revenue and revenue from our rehabilitation clinics. We had income from operations for the three months ended June 30, 2010 of $72.6 million compared to $65.4 million for the three months ended June 30, 2009. The increase in income from operations was related to (1) increase in profitability of our specialty hospitals opened as of January 1, 2009 and operated throughout both periods, and (2) growth in our outpatient operations, and (3) a reduction in our general and administrative expenses. Holdings interest expense for the three months ended June 30, 2010 was $29.3 million compared to $33.7 million for the three months ended June 30, 2009. Selects interest expense for the three months ended June 30, 2010 was $22.3 million compared to $24.9 million for the three months ended June 30, 2009. The decrease in interest expense for both Holdings and Select was attributable to a reduction in outstanding debt balances that occurred throughout 2009.

For the six months ended June 30, 2010, our net operating revenues increased 3.9% to $1,164.7 million compared to $1,120.7 million for the six months ended June 30, 2009. This increase in net operating revenues resulted from a 4.5% increase in our specialty hospital net operating revenue and a 2.6% increase in our outpatient rehabilitation net operating revenue. The increase in our specialty hospital net operating revenue is principally due to the hospitals opened as of January 1, 2009 and operated by us throughout both periods. The increase in our outpatient rehabilitation net operating revenue is principally due to an increase in contract services based revenue. We had income from operations for the six months ended June 30, 2010 of $145.2 million compared to $133.0 million for the six months ended June 30, 2009. The increase in income from operations was principally related to an increase in profitability of our specialty hospitals opened as of January 1, 2009 and operated throughout both periods and a reduction in our general and administrative expenses. Holdings interest expense for the six months ended June 30, 2010 was $59.3 million compared to $68.3 million for the six months ended June 30, 2009. Selects interest expense for the six months ended June 30, 2010 was $45.4 million compared to $50.8 million for the six months ended June 30, 2009. The decrease in interest expense for both Holdings and Select was attributable to a reduction in outstanding debt balances that occurred throughout 2009.

On June 2, 2010, CMS published a notice of changes to the payment rates for LTCH-PPS during the portion of rate year 2010 occurring on or after April 1, 2010. The standard federal rate for discharges occurring on or after April 1, 2010 is revised to $39,795. This change reflects a decrease from $39,897 established in the original final rule for RY 2010. This change to the LTCH-PPS standard federal rate for the remainder of FY 2010 is based on a market basket increase estimate of 2.5% less a reduction of 0.5% to account for what CMS attributes as an increase in case-mix resulting from changes in documentation and coding practices less an additional reduction of 0.25% as mandated by the PPACA. The notice revises the fixed-loss amount for high cost outlier cases for RY 2010 discharges occurring on or after April 1, 2010 to $18,615, which is higher than the RY 2010 fixed-loss amount of $18,425 in effect from October 1, 2009 to March 31, 2010.

On July 30, 2010, CMS released the policies and payment rates for LTCH-PPS for fiscal year 2011 (affecting discharges and cost reporting periods beginning on or after October 1, 2010 and before September 30, 2011). The standard federal rate for FY 2011 is $39,600, which is a decrease from the RY 2010 federal rate of $39,897 in effect from October 1, 2009 to March 31, 2010 and the RY 2010 federal rate of $39,795 that went into effect on April 1, 2010. This update to the LTCH-PPS standard federal rate for FY 2011 is based on a market basket increase of 2.5% less a reduction of 2.5% to account for what CMS attributes as an increase in case-mix in prior periods (FYs 2008 and 2009) that resulted from changes in documentation and coding practices less an additional reduction of 0.5% as mandated by the PPACA. The final rule establishes a fixed-loss amount for high cost outlier cases for FY 2011 of $18,785, which is higher than the RY 2010 fixed-loss amount of $18,425 in effect from October 1, 2009 to March 31, 2010 and the $18,615 that went into effect on April 1, 2010. The final rule includes revisions to the relative weights for the MS-LTC-DRGs for FY 2011 based on the standard federal rate. Consistent with the May 4, 2010 proposed rule for FY 2011, CMS replaced the term rate year for LTCHs with fiscal year in order to reflect the fact that the policies and payment rates for LTCHs are now revised on a fiscal year basis (from October 1st through September 30th).

On July 22, 2010, CMS published a notice of changes to the payment rates for IRF-PPS during the portion of rate year 2010 occurring on or after April 1, 2010 and before October 1, 2010. As described above, the PPACA mandates a market basket reduction of 0.25% for FY 2010. The standard federal rate for discharges occurring on or after April 1, 2010 is revised to $13,627. This change reflects a decrease from $13,661 established in the original final rule for FY 2010. In the same notice, CMS increased the outlier threshold amount to $10,721 for discharges occurring on or after April 1, 2010. The outlier threshold was $10,652 for discharges occurring on or after October 1, 2010 through March 31, 2010.

On July 22, 2010, CMS published an update to the payment rates for IRF-PPS for fiscal year 2011 (affecting discharges and cost reporting periods beginning on or after October 1, 2010 and before September 30, 2011). The standard federal rate for discharges during FY 2011 is revised to $13,860. This change reflects an increase from $13,627 established in the revised final rule for the final months of FY 2010, as well as the market basket reduction of 0.25% required by PPACA. CMS also increased the outlier threshold amount for FY 2011 to $11,410 from $10,721.

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