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Community Health Stock Plunges On Profit Warning, Subpoena

Shares of Community Health Systems, Inc. (CYH) plunged in after-hours trading on Thursday after the hospital operator issued a profit warning for the second quarter and added that it received another subpoena from the Department of Justice relating to the investigation of Medicare short-stay admissions.

The company expects net operating revenues for the second quarter to be about $3.236 billion, compared with $3.243 billion generated last year.

According to Community Health Systems, revenues were hurt by weak volume, especially in May and June, along with higher-than-anticipated bad debts and a deterioration in payor mix.

Income before taxes is estimated to be $65 million, compared with $151.7 million in the prior year.

Adjusted Earnings Before Interest, Tax, Depreciation and Amortization or EBITDA for the three months ended June 30 is expected to fall to $414 million from $483 million for the same period in 2012.

Adjusted EBITDA excludes discontinued operations, loss from early extinguishment of debt, and net income attributable to non-controlling interests.

The consolidated operating results for the quarter reflect a 5.1 percent decrease in total admissions and a 1.8 percent decrease in adjusted admissions from the previous year.

On a same-store basis, admissions decreased 5.7 percent and adjusted admissions decreased 2.6 percent.

Community Health Systems said this is its first significant earnings miss since the third quarter of 2006 and that its management team has intensified its focus on core operating strategies, volume initiatives and expense management.

The company also announced that the Department of Justice's investigation of Medicare short-stay admissions from emergency departments is continuing. The company has already met with the government twice this year and on July 9, it was served with an additional document subpoena.

The subpoena seeks additional documents related to the admission of inpatients from its emergency departments, as well as documents that support the factual refutations and defenses that the company has presented during its discussions with the government.

While many of the categories of documents were the same as those requested in the April 2011 subpoena, the request is being broadened to additional custodians and locations and additional categories of documents have been added.

The government also served civil investigative demands to interview two of the company's current employees, one division president and one senior vice president.

CYH closed at $47.31 on Thursday, but plunged 17.76 percent in the extended trade.

by RTT Staff Writer

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