Select Medical Corp. has a market cap of $1.4 billion; its shares were traded at around $8.76 with and P/S ratio of 0.6.
Highlight of Business Operations:For the three months ended March 31, 2010, our net operating revenues increased 4.2% to $584.8 million compared to $561.2 million for the three months ended March 31, 2009. This increase in net operating revenues resulted from a 4.7% increase in our specialty hospital net operating revenue and a 3.1% 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 three months ended March 31, 2010 of $72.6 million compared to $67.6 million for the three months ended March 31, 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. Holdings interest expense for the three months ended March 31, 2010 was $30.0 million compared to $34.7 million for the three months ended March 31, 2009. Selects interest expense for the three months ended March 31, 2010 was $23.0 million compared to $26.0 million for the three months ended March 31, 2009. The decrease in interest expense for both Holdings and Select was attributable to a reduction in outstanding debt balances that occurred throughout 2009.
Cash flow from operations used $15.8 million of cash for the three months ended March 31, 2010 for Holdings and $2.9 million of cash for the three months ended March 31, 2010 for Select. The difference primarily relates to interest payments on Holdings senior subordinated notes and senior floating rate notes.
On April 19, 2010, CMS released the proposed 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). In the proposed rule, CMS announced its intent to replace the term rate year with fiscal year to reflect that LTCHs payment polices are now revised on a fiscal year basis (from October 1st through September 30th). For fiscal year 2011 CMS adopted a 0.1% decrease in payments under LTCH-PPS. As a result, the standard federal rate for fiscal year 2011 is set at $39,856.75, a decrease from $39,896.65 in rate year 2010. The decrease is based on a market basket increase estimate of 2.4% less an adjustment of -2.5% to account for what CMS attributes as an increase in case-mix in prior periods (rate years 2008 and 2009) that resulted from changes in documentation and coding practices that did not reflect increases in patients severity of illness. The fixed loss amount for high cost outlier cases is set at $18,692. This is an increase from the fixed loss amount in the 2010 rate year of $18,425.
Beginning on January 1, 1999, the Balanced Budget Act of 1997 subjected certain outpatient therapy providers reimbursed under the Medicare physician fee schedule to annual limits for therapy expenses. Effective January 1, 2010, the annual limit on outpatient therapy services is $1,860 for combined physical and speech language pathology services and $1,860 for occupational therapy services. The per beneficiary caps were $1,840 for calendar year 2009. In the Deficit Reduction Act of 2005, Congress implemented an exceptions process to the annual limit for therapy expenses. Under this process, a Medicare enrollee (or person acting on behalf of the Medicare enrollee) is able to request an exception from the therapy caps if the provision of therapy services was deemed to be medically necessary. Therapy cap exceptions were available automatically for certain conditions and on a case-by-case basis upon submission of documentation of medical necessity. The PPACA extended the exceptions process through December 31, 2010.
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