Healthcare Update
by Tim Meyer (TMF Attila)

McLean, VA (July 21, 1997) -- A special note! Due to a reorganization of our online areas, there will no longer be a separate "page" for the health care update on AOL or the Fool website. I will continue to write a weekly report, but starting next week, the weekly update will be posted on the Health Care message boards (in the Industry & Market Analysis folder) on either AOL or the web. I urge our Web readers to sign up for the free registration to our message boards, if you haven't already. Even if you don't register, you can still read (you just can't post messages without registering) the Healthcare Board. For those of you on the e-mail notification list, I will continue to send you a note when a new update has been posted. If you are not on the list and would like to receive e-mail notification that a new update has been posted, send an email request to TMF [email protected] and I will add you to the list.

OUR POLITICAL HEALTH

I CAN SEE CLEARLY NOW...

Remember that old Johnny Nash tune? It came to mind this week as I perused the news. I must admit, I have been confused lately. From what I've seen in a number of areas (not the least of which is in health care) it was hard for me to understand how "the era of big government" could be "over". Well, Vice President Gore delivered the keynote address to the Democratic Leadership Council and the press reported he warned that, "without a balanced budget today, there may be no progressive, activist government tomorrow." Now I've got it. The government doesn't need to be any bigger; it just needs to be more activist.

COFFEE ANYONE?

There was an interesting piece in today's Wall Street Journal editorial page, "Politics Trumps Science at the FDA." It discusses some of the things that happened in the background leading up to the FDA's denying approval of generic substitute Premarin, including AMERICAN HOME PRODUCTS CORP.'s <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AHP)") else Response.Write("(NYSE: AHP)") end if %> CEO attending a White House kaffe-klatsch followed by a $50,000 donation to the DNC.

DURAMED PHARMACEUTICALS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DRMD)") else Response.Write("(Nasdaq: DRMD)") end if %> is challenging the FDA decision. Generic-drug maker BARR LABORATORIES INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: BRL)") else Response.Write("(AMEX: BRL)") end if %> was also impacted by the decision. For the week, American Home Products was down $1 1/2 (1.9%), closing Monday at $78, Duramed was down $1/8 (3.4%), closing at $3 1/2, while Barr was up $2 5/16 (5.5%), closing at $44 3/16.

HEALTHCARE COMPANIES IN THE NEWS

HCIA INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HCIA)") else Response.Write("(Nasdaq: HCIA)") end if %> announced that it expects a loss per share for the quarter ended June 30, 1997, of between ($0.15) and ($0.18). According to the company, the earnings shortfall is primarily attributable to a combination of a shortfall in revenue from the company's Provider Solution Unit, which was formed after the August 1996 acquisition of LBA Health Care Management, Inc. and the failure of the Commercial Markets and Managed Care Units to finalize several significant agreements during the second quarter. In addition, a company press release quoted the CEO saying, "While the Provider Solutions Unit is a key element of the company's overall business plan, the Unit's earnings contribution will most likely fall short of our original expectations for the third and fourth quarters of 1997." The day of the announcement, the stock fell $16 3/8 (51.2%) to $15 5/8. For the week, HCIA was up $1 1/16 (6.8%), closing Monday at $16 11/16.

Nurses protesting a pay package offer from Kaiser Permanente staged a two-day strike at 47 hospitals and clinics operated by Kaiser in Northern California. A sympathy walkout by other union members failed to materialize. This was the second walkout called by the nurses union in three months. According to the company, Kaiser Permanente's existing contract with the California Nurses Association, based on independent surveys, offers wages and benefits that are up to 40% higher than community average. A full-time Kaiser Permanente nurse earns an average of $62,000 a year and with fringe benefits included, the average total compensation is $72,000 a year.

SUN HEALTHCARE GROUP INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SHG)") else Response.Write("(NYSE: SHG)") end if %> said the Justice Department's criminal division completed its investigation of the company's billing practices. The company said the Justice Department would not initiate any actions against Sun or any individuals and the company will not be penalized in any way, including fines. Sun has been under investigation for more than two years by the Department of Health and Human Services' (HHS) Office of Inspector General (IG) and the Justice Department. The investigation by the civil division of the Justice Department and the Office of Inspector General will continue. The Evening News 07/17/97 has a Foolplate Special with additional details. For the week, Sun was up $3/8 (1.8%), closing Monday at $20 5/8.

COLUMBIA/HCA HEALTHCARE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COL)") else Response.Write("(NYSE: COL)") end if %> got some good news and some bad news. A Massachusetts Superior Court lifted the preliminary injunction enjoining the merger of VALUE HEALTH INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VH)") else Response.Write("(NYSE: VH)") end if %> and Columbia/HCA. The companies expect the merger to close this month, following approval of the California Department of Corporations.

On the bad news side, FBI agents executed search warrants July 16 at facilities operated by Columbia/HCA in six states. More than 35 warrants were issued under seal and were served in Tennessee, Florida, North Carolina, Texas, Oklahoma and Utah. Some of the warrants were served at offices of Olsten Health Management, a unit of OLSTEN CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OLS)") else Response.Write("(NYSE: OLS)") end if %>. Olsten Health Management manages about 150 Columbia home-health-care agencies nationwide. Columbia said it believes the warrants are requesting information primarily on its home-health-care business and its hospital-laboratory billing based on the kinds of documents taken. Government officials have refused to comment on the nature of the investigation. The New York Times reported the inquiry has grown out of an HHS IG investigation that has been underway for several years.

On July 18, the FBI's Atlanta office confirmed that it has an active investigation underway of Columbia/HCA in Georgia, bringing the number of states with facilities involved to seven. Following searches earlier this year at its El Paso, Texas facilities, Columbia/HCA President and CEO Rick Scott said the El Paso investigation was just one of hundreds looking at health care and he welcomed the scrutiny. Does anyone know if Mr. Scott attended any kaffe-klatsches? If he didn't, I bet he wishes he had now. For the week, Columbia/HCA was down $6 11/16 (17.2%), closing Monday at $32 1/4, Value Health was unchanged, closing at $20 1/8, while Olsten was down $1 5/8 (7.7%), closing Monday at $19 3/8.

The Motley Fool's Industry Snapshot featured medical technology companies in the most recent issue. Non-subscribers can get an abbreviated version at: http://www.fool.com/Decathlon/1997/Decathlon1997.htm.

EARNINGS REPORTS

ABBOTT LABORATORIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ABT)") else Response.Write("(NYSE: ABT)") end if %> reported second quarter net income of $522 million, or $0.68 a share, on revenues of $2.9 billion, compared to 1996 second quarter net income of $470 million, or $0.60 cents a share, on revenues of $2.699 billion. For the week, Abbott was down $2 3/8 (3.7%) closing Monday at $61 7/8.

HBO & COMPANY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HBOC)") else Response.Write("(Nasdaq: HBOC)") end if %> reported second quarter net income of $44.9 million, or $0.44 a share, on revenues of $270.5 million, compared to 1996 second quarter net income of $27.4 million, or $0.27 a share, on revenues of $216.3 million. For the week, HBO & Co. was up $15/16 (1.2%) closing Monday at $78 1/4.

MERCK & CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MRK)") else Response.Write("(NYSE: MRK)") end if %> reported second quarter net income of $1.2 billion, or $0.96 a share, on revenues of $5.9 billion, compared to 1996 second quarter net income of $972.1 million, or $0.80 a share, on revenues of $4.9 billion. For the week, Merck was up $4 5/16 (4.3%), closing Monday at $104 3/4.

HEALTHSOUTH CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HRC)") else Response.Write("(NYSE: HRC)") end if %> reported second quarter net income of $81.3 million, or $0.23 a share, on revenues of $723.0 million, compared to 1996 second quarter net income of $62.0 million, or $0.18 a share, on revenues of $628.9 million. For the week, Healthsouth was up $2 3/8 (9.0%), closing Monday at $28 7/8.

DURA PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DURA)") else Response.Write("(Nasdaq: DURA)") end if %> reported second quarter net income of $9.3 million, or $0.20 a share, on revenues of $43.6 million, compared to 1996 second quarter net income of $4.6 million, or $0.12 a share, on revenues of $18.8 million. For the week, Dura was down $7/8 (2.1%), closing Monday at $41 5/8.

JOHNSON & JOHNSON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JNJ)") else Response.Write("(NYSE: JNJ)") end if %> reported second quarter net income of $909 million, or $0.68 a share, on revenues of $5.7 billion, compared to 1996 second quarter net income of $791 million, or $0.60 a share, on revenues of $5.38 billion. For the week, Johnson & Johnson was down $2 1/4 (3.6%), closing Monday at $60 11/16.

PFIZER INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PFE)") else Response.Write("(NYSE: PFE)") end if %> reported second quarter net income of $457 million, or $0.35 a share, on revenues of $2.91 billion, compared to 1996 second quarter net income of $394 million, or $0.31 a share, on revenues of $2.66 billion. For the week, Pfizer was down $2 (3.3%), closing Monday at $58 7/16.

MEDIC COMPUTER SYSTEMS, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MCSY)") else Response.Write("(Nasdaq: MCSY)") end if %> reported second quarter net income of $6.2 million, or $0.24 a share, on revenues of $60.3 million, compared to 1996 second quarter net income of $5.6 million, or $0.23 a share, on revenues of $44.6 million. For the week, Medic was up $3 1/2 (14.5%), closing Monday at $27 5/8.

That wraps it up for this week. Hope to see you on the message boards. Please share any comments/suggestions on how to improve this feature by posting on the Healthcare message board or via e-mail (TMF [email protected]). Also let me know if you would like a reminder forwarded to your email address when a new update has been posted. In the meantime, here is hoping your investments are healthy!

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