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Columbia/HCA cheers 53% earnings drop

It's a measure of how bad things have been for a company when a drop in profits of more than 50 percent is touted as good news.

That's what happened Wednesday when Columbia/HCA Healthcare Corp. presented first-quarter net income that was down 53 percent from a year ago but still better than expected for the troubled hospital chain.

"The best part of it is that we're really beginning to see the effects of the repositioning and reorganizing put in place late last year," said Victor L. Campbell, Columbia's senior vice president. "But we obviously still have a long way to go."

The Nashville, Tenn., health care company is the target of an intensive, ongoing government investigation that has resulted in the indictment of three mid-level executives on charges of Medicare fraud. Dr. Thomas Frist, who took over as Columbia's chief executive in July, put the brakes on the company's aggressive expansion and began paring the company's operations.

In the first quarter ended March 31, Columbia's net income was $197-million, or 31 cents a diluted share, compared with $423-million, or 62 cents a diluted share, a year earlier.

The company took a $22-million write-off during the quarter for discontinued operations and $38-million for costs related to restructuring and the government investigation.

Net income before charges was $241-million, or 37 cents a diluted share, compared with $455-million, or 66 cents a diluted share, in the first quarter of 1997.

Revenues for the latest quarter were $4.9-billion, down 1.7 percent from year-ago revenues of nearly $5-billion.

Analysts welcomed the results, which looked particularly good compared with Columbia's net loss of $1.92 a share in the final quarter of 1997. It was the first time the 10-year-old company reported a loss.

"We all knew the fourth quarter was where they got rid of significant costs after a turnaround of strategy," said Peter Costa, an analyst with ABN AMRO in Boston. "We expected a rebound and we got a little better one than expected."

On Wednesday, Columbia's shares dipped 12{ cents to close at $32.25.

Also Wednesday, Columbia said it will ask the Internal Revenue Service this summer to approve the tax-free spinoff of two new companies made up of about 60 Columbia hospitals. With the spinoff and sales of selected hospitals, Columbia, which now has 336 hospitals, expects to end 1998 with about 240 facilities.

A third hospital group, originally scheduled to be spun off, has now been targeted for sale or repositioning. Columbia's hospital in Dade City is among this group of 45 facilities in eastern states. Columbia's other 11 facilities in the Tampa Bay area are to remain part of the parent company.

During a conference call Wednesday, Columbia executives refused to discuss details of the company's continuing negotiations to reach an agreement with government investigators. Though any settlement might cost the company $1-billion or more in fines, one analyst said such one-time charges would not be seen as a major hurdle to Columbia's recovery.

"Big charges could be coming out in the future if they settle with the government and that quarter could look like the worst ever," said ABN AMRO's Costa, who has a "buy" rating on Columbia. "But clearly, I think we've turned the corner on operating performance."

Or, as Columbia's Campbell put it, "We hope the wind's at our back."