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Executive Summary

HOSPITAL ADMISSIONS IN FEBRUARY WERE OFF 3.8%, according to an American Hospital Supply Corp. (AHSC) mini-poll of hospital census activity. The company told health care analysts in NYC on May 24 that occupancy rates have declined more than admissions. Occupancy rates were off 13.8% in February compared to the 3.8% decline in admissions. The effect of cost pressures on the hospitals can be seen in AHSC first quarter operating results. While corporate sales were up 6% in dollar terms, unit growth was up 7%. The difference reflects in part the price pressure being brought to bear by hospitals on AHSC. AHSC Chairman Karl Bays noted the impact of hospital cost concerns on AHSC's performance during the first quarter of 1984. The firm's first quarter sales were up only 6% in dollars, "one of the lowest quarterly gains we've ever experienced," said Bays. The company's unit volume in the first quarter was up 7%, indicating the price pressure being exerted by hospitals. "Operating earnings were up just 1%, reflecting, in part, reduced margins as we keep our prices down, and also a higher operating expense ratio than we can afford given the kind of sales increases we've had." While hospital customers "are demanding and getting better prices," Bays observed, the firm has improved net margins "thanks, in part, to an increase in tax savings from Puerto Rico operations [that] will continue to help boost our net earnings throughout 1984." In addition, he said AHSC's recent reorganization and cost-reduction efforts should improve operating margins by 2% "over the next few years." Bays was also asked by analysts about AHSC's acquisition plans given the stock market's recent reaction to health care companies and the relatively low P/E ratios of many health care firms. He pointed out that AHSC has been very aggressive in the acquisition area, joking "some of you may feel that we have been too aggressive." He noted that "the marketplace right now is interesting" with the low stock prices.

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