LifePoint Hospitals (LPNT)

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Katerina Semida

Alan Ibrahim

LifePoint (NASDAQ:LPNT) owns and operates 47 general acute-care hospitals located throughout the United States, usually in rural areas. The company has a total of 5,552 licensed beds and serves 17 states.The demand for LifePoint's services is affected by demographic trends such as the aging of the US population and the number of people moving into and out of the rural markets where it operates. The firm's profitability suffers from the need to treat growing numbers of uninsured patients. The company earned $2.96 billion in revenue and $139 million in net income in 2009.^[1]

Since its facilities, like most rural hospitals, usually have virtual monopolies in their markets, LifePoint does not compete with other large national hospital operators. Instead, it faces challenges from physician-owned hospitals and surgery centers. These specialized centers often draw off patients for the most profitable procedures, such as implanting pacemakers, leaving hospitals with less profitable patients and procedures.

Company Overview

LifePoint's 47 hospitals operate in five divisions, which are organized based on geographic location and size and complexity of the hospitals in them. All hospitals provide general inpatient services such as internal medicine, obstetrics, psychiatric care and emergency room care. The firm has also moved to provide more specialized services such as open-heart surgery and neurosurgery (to compete with nearby urban hospitals) and outpatient services such as laboratory, x-ray, and sports medicine (to compete with independent or physician owned centers). As most of its hospitals are in rural areas, LifePoint's hospitals generally do not carry out medical research or run medical schools.^[2]

Sources of Revenue^[3]

• Medicare - 29.6% of net revenue
• Medicaid - 10.3% of net revenue
• HMOs, PPOs and other private insurers - 44.3% of net revenue
• Self-pay - 13% of net revenue
• Other - 2.8% of net revenue

Business Growth

FY 2009 (ended December 31, 2009)^[1]

• Net revenue increased 10% to $2.96 billion. The company benefited from a 4.6% increase in equivalent admissions and a 4.9% increase in revenue per equivalent admissions.
• Net income increased 10% to $139 million.

Trends and Forces

Aging Baby Boomers Require More Health Care, Raising Demand for Hospital Services

The retirement of the baby boomers, who make up slightly over a quarter of American's population, has had an economic as well as demographic impact on the US population. A rapid increase in the number of elderly Americans provides an opportunity for hospital owners like Community Health, since people older than 65 generally need more medical care.^[4] At the same time, the aging of the population will indirectly hurt Community Health through its effect on Medicare. The Medicare system is becoming saturated as more baby boomers reach the eligible age and need the program's coverage (Medicare expenditures comprised roughly 5% of the U.S. GDP and is expected to increase),^[5] and as current reimbursement levels are not sustainable, per-patient Medicare revenues will decrease.

Trends in Urbanization Impact Potential Number of Patients

75% of the US population lives in an urban area. Urban areas are adjoining census blocks with a population density of at least 1,000 people per square mile and surrounding census blocks with a population density of at least 500 people per square mile.^[6] Since the year 2000 there's been a large increase in the number of people moving into cities. In fact, only 5 of the 50 largest metropolitan areas in the country lost population between since 2000.^[7] Since the population in rural areas puts a limit on the potential number of patients LifePoint's hospitals can serve(and thus the potential revenues it can earn), population demographics are an important factor in evaluating the company's prospects for earnings growth.

Ability to Attract Patients Depends on Availability of Qualified Physicians

In order to increase or even maintain the breadth of specialized services available to patients, LifePoint must be able to hire qualified physicians. This has become a challenge for hospitals as the nation begins to experience a shortage of physicians, particularly surgeons and family doctors. American physicians are getting older - in the last twenty years, the percentage of doctors over 55 years old has risen from 27% to 34%, meaning that many of them will be retiring in the coming years. In rural areas, where less than 10,000 of 212,000 physicians are surgeons, specialists are especially scarce. Rural doctors generally receive smaller salaries than their urban counterparts, adding to the challenges faced by LifePoint in its recruitment practices.^[8]

Competition

LifePoint holds a virtual monopoly in most of its markets simply because its hospitals are the only providers of general acute-care services in the vicinity. This is common to most American rural hospitals and reflects years of industry consolidation. Thus, the firm's primary competition is not other area hospitals, but rather urban hospitals, where patients are increasinly moving towards specialized care. The firm competes by recruiting more specialists and investing in new technology in order to widen the range of services available to patients.

In the past several years, new types of competitors have been entering LifePoint's markets and decreasing patient volume: physician-owned hospitals and stand alone surgery and diagnostic centers New technologies have made it possible for physicians to perform procedures that earlier had to be done in a hospital. LifePoint is addressing this challenge by attempting to partner with physicians. For instance, the firm began a joint venture with physicians in Lake Havasu, Arizona, in response to the formation of a stand alone surgery center. LifePoint's hospital and the stand alone center pooled their assets and LifePoint got control of 96% of the venture.^[9]

References

1. ↑ ^{1.0 1.1} LPNT 2009 10-K "Selected Financial Data" pg. 37
2. ↑ LPNT 2009 10-K "Operations" pg. 1-2
3. ↑ LPNT 2009 10-K "Sources of Revenue" pg. 3-10
4. ↑ "Aging Baby Boomers" Wikinvest Article
5. ↑ Government Accountability Office "Medicare and Medicaid Spending as a Percentage of GDP"
6. ↑ Missouri Census Data Center
7. ↑ USA Today "Slump stunts Sun Belt growth" July 7 2010
8. ↑ Davis, Robert. "Shortage of surgeons pinches U.S. hospitals." USA Today
9. ↑ LifePoint Hospitals to Acquire Havasu Surgery Center