Flashback: Wal-Mart of Hospitals Marked Down
Every hot stock has a story analysts tell to pump it for all it’s worth or more.
National Healthcare Inc.’s story in 1986 was: “We’re the Wal-Mart of health care.” CEO Stephen Phelps repeated it for us — the same line he and the company’s promoters had been telling anyone who would buy it.
Forbes magazine bought it, featuring the company as a “wunderkind” in its August issue that year, the same month we visited the company in its headquarters in Dothan. Company officials and analysts said National Healthcare was an expert at buying up undervalued rural hospitals and turning them around, using a top-notch management team that jetted around a circuit of more than 33 hospitals in 11 states.
In the fourth quarter of its third year as a public company — after two equity offerings led by junk bond legend Drexel Burnham Lambert — National Healthcare was giddy with success. More than 300 of the company’s managers and their families gathered together for a regular bimonthly booster event. Third quarter results had just been released and the corporate cheering was unbridled, led by David Talbot, senior health care analyst for Drexel Burnham.
“There is a lot of money that can be made playing the niches in health care,” Talbot told the hometown crowd. “Our suggestion: rural health care, as practiced by your company and your company only.”
Less than three weeks later, fourth quarter results came in well under target and the stock plummeted in one day from $13.63 to $8.00. Reimbursements from Medicare and Medicaid did not meet expectations, the company said.
Then they kept saying it, as losses continued quarter after quarter.
In 1987, a class-action shareholder suit claimed the company’s turnaround track record was a shell game of keeping reimbursement shortfalls off the books. The plaintiffs settled in 1988 for more than $17 million.
National Healthcare began selling off its hospitals in 1987, with its stock trading below $1.00 per share. The company moved to Atlanta, was delisted as a public stock and its hospital group dwindled to a reality evermore untouched by Wall Street magic.
Chris McFadyen is the editorial director of Business Alabama.