From Becker’s Morning News Brief

Firefly Value Partners Co-Founder and Portfolio Manager Ryan Heslop is bearish on Franklin, Tenn.-based Community Health Systems, according to Reuters.

Mr. Heslop, who was one of several hedge fund managers to present May 6 at the Ira Sohn Investment Conference in New York, announced a short position in CHS during the conference.

He said CHS will likely go bankrupt over the next few years due to rising debt costs and dwindling revenue per hospital bed. 

The company’s “pile of debt and the declining profitability of hospitals make it almost certain that this patient will die,” Mr. Heslop said, according to Reuters.

CHS didn’t immediately respond to Reuters’ request for comment.

On Monday a hedge fund manager predicted that for CHS, the train was on the tracks…heading for bankruptcy.

More than five years ago I predicted that CHS “was toast.” That blog post, I will admit, drew some scorn and a few trolls but it should not have been any great surprise. At the time their stock price was flying high at more than 62 a dollars a share. Today, if you are one of the lucky investors who stuck around for the ride, your shares are worth around $3.50.

My post was based the changing reimbursement patterns as well as my belief that the geographic location and size of their hospitals, as well as an insane push for double digit growth by relying on the “butts in the bed” mentality, would blow up in their faces.

The reality is that what really accelerated their downhill slide was their foolish acquisition of HMA, a notoriously borderline hospital management company that lived on the ethical edge, to strengthen their growth in revenue. HMA, too, was focused on inpatient admissions, even to the extent of forcing ER physicians to admit a certain percentage of their patients.

If you live on the edge, there will always be consequences. As the late Gonzo journalist Hunter Thompson once wrote:

“The Edge… there is no honest way to explain it because the only people who really know where it is are the ones who have gone over.”

And there is the reality of the HMA debacle:

Former CEO Pays Big Fine But Denies Wrong Doing

Government Slaps HMA With Fine for False Billing Scam Billing

This unfortunate affair, motivated by a desire to please investors (read: greed), includes massive ethical lapses even though the former HMA CEO denies he did anything wrong. That sounds familiar — an earlier Columbia/HCA scandal.

In the end there are always victims, many of them innocent of the bad leadership decisions. Many jobs are lost, some communities may actually lose their hospital and the many doctors who drank the Kool-Aid and partnered with CHS may face significant disruptions.

There are consequences to our ethical lapses.

As for my criticism of CHS, I am afraid I qualify for newspaper columnist Murray Kempton’s definition of a critic: “Someone walks down the hill after the battle is over and shoots the wounded.”