Medical Facilities Corporation - Healthcare Industry Analysis
Company Overview
Medical Facilities Corporation (MFC) is a British Columbia corporation that owns 51%+ interest in five specialty surgical hospitals, located in South Dakota, Oklahoma, and Arkansas, as well as 51% in an ambulatory surgery center in California. The specialty surgical hospitals ("SSHs") perform scheduled surgical, imaging and diagnostic procedures and, combined, have a total of 43 operating rooms and 142 overnight rooms. The ambulatory surgery center ("ASC") specializes in outpatient procedures, with patient stays of less than 24 hours. The ASC has two operating rooms and one procedure room. MFC revenues come from the facility fee charged to the patient, or their insurer. This facility fee is for the use of their infrastructure, surgical equipment, nursing staff, non-surgical professional services, drugs and supplies, and other support services. MFC generates Revenues from the volume of the procedures, the acuity and complexity of the procedures (case mix) and the composition of payors (employers, insurance companies, government agencies). The volume of procedures performed at the Centers depends on demographic factors, the Centers’ ability to deliver high quality care to patients, encourage physicians to perform procedures at the Centers and lastly their ability to form and maintain effective relationships with major third-party payors in the geographic areas served. The case mix at each Center is a function of the clinical specialties of the physicians and medical staff and is also dependent on the equipment and infrastructure at each Center. The payor mix is an important influencer of the revenue since different payors tend to have different reimbursement rates for the same type of procedures, meaning different amount of profit for the Centers. MFC pays out a majority of its free cash flows from operations to holders of its common shares in the form of a monthly dividend.
The Centers derive revenues, incur expenses and make distributions to their owners, including the Corporation, in U.S. dollars. The Corporation pays dividends to common shareholders and incurs a portion of its expenses in Canadian dollars. The amounts of distributions from the Centers to their owners, including the Corporation and non-controlling interests, are dependent on the results of the operations and cash flow generated by the Centers in any particular period
20% of the physicians who practice at the facilities are also investors. Collectively, they hold up to 49% interests in the individual facilities.
I don’t know if I should include this or not.
Sector Outlook
The health care sector comprises of organizations which are engaged in provision of goods and services which relate to prevention and treatment of medical conditions for the general population. The sector consists of Healthcare Providers and Services, Pharmaceuticals, Biotechnology and Life Sciences tools and services. MFC belongs in the Health Care Providers and Services industry which includes owners and operators of health maintenance organizations, hospitals, clinics, dentists, opticians, nursing homes, rehabilitation and retirement centers. It also includes organizations engaged in provision of specialized health insurance and administering Medicare, which fall under the umbrella of healthcare related services. The major characteristic distinguishing this industry from others is the fact that it includes organizations which are primarily engaged in provision of health care services to the general public.
Legislative and secular challenges are forcing a sea change in the US healthcare sector. Whether or not US healthcare reform is implemented as proposed, changes to the US healthcare system over the next three to five years will be sweeping—and the investment implications broad. Only the players that can deliver more cost-effective or more progressive products and services stand ready to make the most of investment opportunities long term.
Supply/Demand History ( this is Kieran’s stuff. Should I include it or not? Replace it?
Demand for health care services is largely driven by economic and demographic factors. In the United States, there is the combination of an aging population and an increase in multiple diseases that creates a good environment for this industry. Demand for healthcare providers is threatened by a socio-cultural effort to be healthier, and to eat and act in a more health conscious way. Demand is also hugely affected by the effects of the Affordable Care Act, which has expanded the accessibility of health care to more Americans.
Supply/Demand Outlook
The implementation of Obamacare has had a “down-and out” type of effect on the industry. The magnitude of customers may have increased, but they have come at increasingly smaller premiums and tighter margins. There is consistent pressure from governments to lower margins on services that provide essential health services. In the long term, those who are positioned to achieve low operation costs will benefit from an older, wealthier generation. Insurance companies are gaining new customers as the act makes it mandatory for US residents to obtain insurance coverage. However, Obamacare imposes significant restrictions on insurance companies. The act requires insurance companies to provide coverage to individuals with pre-existing conditions at similar premiums to existing customers. In addition, the act prohibits lifetime limits on claim amounts as currently imposed by insurance companies. Another significant impact would be the requirement for insurance companies to pay out at least 80% of premiums received on actual health benefits for its customers, as opposed to the current average of 60%