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Ahead of the Bell: Analyst cuts Community Health

The Associated Press

Community Health Systems Inc. could miss analyst expectations for the third quarter and will incur some risks with its planned acquisition of fellow hospital operator Health Management Associates, said a Citi analyst who lowered his rating on the stock.

Analyst Gary Taylor downgraded shares of Franklin, Tenn.-based Community to 'neutral' from 'buy' and dropped his 12-month price target on the stock to $42 from $60.

Community said in late July that it planned to spend $3.9 billion to buy Health Management Associates Inc., or HMA, an acquisition that would create a large U.S. hospital chain just as the federal health care overhaul starts adding millions of newly insured people to the health care system.

But the deal will increase Community Health's operating and legal risk, as well as its debt, Taylor said in a Monday morning research note.

HMA, based in Naples, Fla., has received subpoenas from the U.S. Department of Health and Human Services, Office of the Inspector General, regarding physician relationships and some emergency-room operations.

Taylor said Community and HMA, as well as rural hospital operators in general, face unique risks over their still deteriorating short-stay inpatient business. Hospital patient volumes for July and August look much weaker than those seen in the second quarter, and the analyst expects both companies to miss consensus expectations for the third quarter without a big patient revenue rebound.

A Community Health representative did not immediately return a call seeking comment early Monday morning from The Associated Press.

Shares of the hospital operator closed at $39.68 on Friday and have climbed 29 percent so far this year.