Seeking Alpha: AmSurg Has Surged Far Enough

The uncertainty in the healthcare services space created by the Affordable Care Act, sequestration, Medicare policies, and the economy has led to some interesting days for the service providers. While there's still a lot of doom-and-gloom talk, service providers like Team Health (TMH), Mednax (MD), and AmSurg (AMSG) have actually fared quite well in the market over the past year.

In the case of ambulatory surgery center (ASC) operator AmSurg, though, I think the momentum has gotten ahead of itself. It's true that shifting more procedures from hospitals to ASCs could save billions, but the company is at risk from ongoing reimbursement cuts, tighter restrictions on physician financial conflicts of interest, and new procedures and technologies reducing center volumes. While these shares admittedly don't look so expensive by popular metrics, the underlying cash flow picture doesn't seem to support today's price.

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AmSurg Has Surged Far Enough

Investopedia: Healthcare Outlook For The Week Ahead

With the Fourth of July holiday coming smack in the middle of the week, this week is likely to be light on news and investable events for investors. Trading volumes will likely be thin, and there are no scheduled announcements of any significance.

Will Glaxo up Its Bid? 
GlaxoSmithKline (NYSE:GSK) ended last week by extending its tender offer to acquire Human Genome Sciences (Nasdaq:HGSI), but has not increased its bid beyond the original $13 per share. With Human Genome shares trading just above $13, it seems that investors have only modest confidence that a higher bid will come, though RBC's Michael Yee recently published a note suggesting that a higher bid (of $15 per share) could be on the way.

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Investopedia: Healthcare Services Group - Great Business ... Great Stock?

If you can reliably reduce costs for healthcare facilities, you're going to be quite popular. To that end, Healthcare Services Group (Nasdaq:HCSG) has indeed built a very appealing and scalable business in providing housekeeping, linen/laundry and dining services to healthcare facilities. While this company has a pretty compelling dividend story, the valuation is a bit confounding.

Cost Challenges Bite into First Quarter Results
Although Healthcare Services did well on the top line, cost control proved to be a more challenging situation. Revenue rose 25%, as the company continues to see solid performance in its core housekeeping/laundry services, but also impressive growth from dietary services, as more clients add these services.

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Seeking Alpha: Can The Government Afford To Let Skilled Healthcare Prosper?

In some respects it may seem like a good thing to have the government as a major customer for your healthcare services. After all, hospitals like HCA (NYSE: HCA) and Health Management Associates (NYSE: HMA) have to wrangle with the fact that they must treat all comers irrespective of ability to pay and bad debt expense is a major issue here. Unfortunately, Medicare and Medicaid are looming as major problem areas in the U.S. federal budget and reimbursement cutbacks threaten to limit Skilled Healthcare's (NYSE: SKH) ability to grow and prosper.

A Deceptively Good Third Quarter
Skilled Healthcare's third quarter results hint at what the company can do. Revenue was up a little less than 4% on flat occupancy. The company's core business, long term care, was down very slightly this quarter, while therapy services and hospice revenue were both up better than 20%. While Skilled Healthcare has stood out a bit from rivals like Kindred (NYSE: KND) and Sun Healthcare (Nasdaq: SUNH) on the basis of a higher mix of skilled services, the skilled mix was a little disappointing this quarter at less than 23%.


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Is Community Health The Right Prescription For Tenet?

Community Health (NYSE:CYH) is taking a time-tested route in its efforts to seal a deal to acquire fellow hospital operator Tenet Healthcare (NYSE:THC) - if you cannot get the other company's board of directors to say "yes," take the negotiations public and hope that your target's shareholders force the matter. While Tenet's arguments for rejecting the deal are not without merit, the 50% jump in Tenet's stock price suggest that shareholders would like a deal and expect an improved offer to come. 

The Deal That Community Health Wants
Community Health, an operator of 126 hospitals in largely suburban areas or small communities, is offering a $7.3 billion deal to Tenet shareholders, including an equity offer of $3.3 billion. In addition to taking on Tenet's substantial debt, CYH would give Tenet shareholders $6 per share in consideration for their shares - $5 in cash and $1 in CYH stock. That deal would have represented a 40% premium for THC shares. (For more, see Mergers And Acquisitions: Understanding Takeovers.)

All in, this would create a hospital operator with 176 locations in 30 states. In contrast to CYH, Tenet operates mostly in urban areas, so there would not be all that much overlap between the two companies. Moreover, this would create the largest hospital operator in the country, surpassing once-public HCA and its 163 hospitals across 20 states. It would also create a highly-leveraged company, with upwards of $15 billion in debt being serviced by less than $3 billion in EBITDA.


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