NAPLES, FL: Senior executives at Health Management Associates were tired of standing by as HMA shares dropped for no apparent reason.
The slide began on November 1, when news hit that FBI agents had raided the Redding Medical Center in Redding, CA, a hospital run by one of its major competitors, Tenet Healthcare, where two cardiologists stand accused of performing unnecessary surgeries. Investors decided it was time to sell their shares first and ask questions later.
The selling gathered pace after further revelations surfaced about Tenet's aggressive pricing model.
Early in the life of the scandal, HMA had been hopeful that positive comments from analysts would rescue its shares from the downdraft, but its hands-off strategy was not working.
"We allowed the sell-side analysts to do their job for about a week, but it wasn't working," said John Merriwether, director of financial relations for HMA. "The stock price was hitting new lows even as analyst notes were coming out saying that this doesn't affect us."
HMA shares were off by nearly 25%, and management decided it had to address the issue publicly, even if that meant pointing a finger at Tenet. On November 13, the company issued a press release in which it stated that the industry was being unfairly punished for Tenet's problems.
"This decline is the direct result of the operational strategy of an individual hospital operator in our industry," stated the release. "These issues are specific to that particular company."
Nearly the entire sector rallied significantly following the HMA release.
"While it's not in our nature to pinpoint a competitor, this was something that was clearly their problem," said Merriwether. "It was a last resort.
We were just at a point where shareholders were calling and asking us to do something, so we felt we had to act."
The HMA release came out the morning after competitor Universal Health Services issued a similar release, which also stated that Tenet's problems were unique to that company.
Hospital companies tend to do little consumer marketing or media outreach initiatives, and therefore have very little PR infrastructure in place.
Indeed, Merriwether said that although he handles most media calls for HMA, it is far from his full-time job.
"It's just me handling media here, along with wearing several other hats," said Merriwether. "The situations when we need to talk to the media are so rare, it doesn't make sense to have someone on it full time, either outside or inside the company."