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

November 12, 2010 | About:
10qk

10qk

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Select Medical Corp. (SEM) filed Quarterly Report for the period ended 2010-09-30.

Select Medical Corp. has a market cap of $1.02 billion; its shares were traded at around $6.38 with a P/E ratio of 11.6 and P/S ratio of 0.5. SEM is in the portfolios of Paul Tudor Jones of The Tudor Group, Jim Simons of Renaissance Technologies LLC, Steven Cohen of SAC Capital Advisors.

Highlight of Business Operations:

For the three months ended September 30, 2010, our net operating revenues increased 7.8%, to $588.3 million compared to $545.6 million for the three months ended September 30, 2009. This increase in net operating revenues resulted principally from an increase in our specialty hospital net operating revenues. The increase in our specialty hospital net operating revenue is principally due to (1) the acquisition of Regency, (2) growth in the hospitals opened as of January 1, 2009 and operated by us throughout both periods and (3) the hospitals opened and acquired in 2009. We had income from operations for the three months ended September 30, 2010 of $42.0 million compared to $32.9 million for the three months ended September 30, 2009. Holdings interest expense for the three months ended September 30, 2010 was $27.7 million compared to $33.5 million for the three months ended September 30, 2009. Selects interest expense for the three months ended September 30, 2010 was $20.8 million compared to $25.1 million for the three months ended September 30, 2009. The decrease in interest expense for both Holdings and Select was attributable to our repayment of outstanding debt with a portion of the proceeds Holdings initial public offering of common stock in September 2009 and lower interest rates that resulted from the maturation of interest rate swaps that carried higher fixed interest rates.

For the nine months ended September 30, 2010, our net operating revenues increased 5.2% to $1,752.9 million compared to $1,666.3 million for the nine months ended September 30, 2009. This increase in net operating revenues resulted from a 6.8% increase in our specialty hospital net operating revenue and a 1.7% increase in our outpatient rehabilitation net operating revenue. The increase in our specialty hospital net operating revenue is principally due to (1) the acquisition of Regency, (2) growth in the hospitals opened and acquired as of January 1, 2009 and operated by us throughout both periods and (3) the hospitals opened and acquired in 2009. The increase in our outpatient rehabilitation net operating revenue is principally due to an increase in both our contract services based revenue and increased revenues in our rehabilitation clinics. We had income from operations for the nine months ended September 30, 2010 of $187.2 million compared to $165.9 million for the nine months ended September 30, 2009. Holdings interest expense for the nine months ended September 30, 2010 was $87.0 million compared to $101.8 million for the nine months ended September 30, 2009. Selects interest expense for the nine months ended September 30, 2010 was $66.2 million compared to $75.9 million for the nine months ended September 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 and lower interest rates that resulted from that maturation of interest rate swaps that carried higher fixed interest rates.

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 was 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 August 16, 2010, CMS published 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 was 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, 2009 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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