HealthSouth Q2 loss down, may spin off units

CHICAGO: HealthSouth Corp on Monday said it may spin off or sell its surgery centres and outpatient rehabilitation units to focus on its more profitable inpatient rehab hospitals, pushing its shares up 6%.

The company, still emerging from a multibillion-dollar accounting scandal that led to investigations by securities regulators and the justice department, also reported a narrower second-quarter loss due to cost controls.

Birmingham, Alabama-based HealthSouth said it hired Goldman Sachs to explore strategic options, including the sale of the surgery and outpatient units to cut debt so that it can focus on the inpatient rehabilitation market. The inpatient rehab unit accounts for about 58% of HealthSouth revenue and 86% of operating earnings.

“If the company was generating the free cash flow it needs, I think management would prefer to keep it together. But they want to pay off the debt, and this is one way to do it,” said Derrick Dagnan, an analyst at Avondale Partners.

HealthSouth’s main business - inpatient rehab for complex cases like stroke, brain and spinal cord injuries - would be detached from its surgery centres, which handle simpler outpatient procedures, and outpatient rehabilitation.

“The company doesn’t have a cohesive theme,” chief executive Jay Grinney said. Grinney cited competition from increasingly popular doctor-owned surgery centres, and competition for patients between its own surgery centres and hospitals, as key drivers of the sale of the surgery division, the second-biggest unit after inpatient rehab.

The top five providers in the inpatient rehab market comprise less than 20% of the market, Grinney said. “We can’t afford these growth opportunities with our debt,” he said. The company’s quarterly net loss narrowed to $51.7m from $62.4m a year earlier.