(By David Sterman) What on Earth is Steven A. Cohen thinking? He's authorized traders at his investment firm, SAC Capital, to quickly build a large position in
Accretive Health (NYSE: AH). Roughly a week ago, SAC announced that it had already bought so many
shares that it now owns 5% of the company. Is Cohen crazy? After all, Accretive has seen its shares plunge after a fairly nasty lawsuit was filed by Minnesota's Attorney General.
Make no mistake, Cohen is no fool. He's amassed a fortune exceeding $8 billion according to Forbes magazine, built largely on contrarian investment approaches. After looking into Accretive Health's current legal woes, I think Cohen is on to something here. If he's wrong, the stock may have 20% or 30% downside from here. But if he's right, this stock could rise 50% or more. Let me explain...
Hospital profit pressures vs. patients' rights
The economic troubles of the past few years have weighed heavily on hospitals. Not only are patients opting to defer lucrative elective surgeries, but they've also been slow to pay for non-elective medical attention. In response, hospitals and the companies that handle billing for them have been ratcheting up the pressure. As patients are set up for surgeries and other treatments, they're being pressed to clear up past debts they might have incurred.
Accretive Health, which is one of the largest hospital billing services providers in the country, may have stepped over the line. In late April, Minnesota Attorney General Lori Swanson filed suit against the company, alleging a pattern of patient intimidation. Shares lost nearly half their value in one day, and still remain far from the 52-week high.
To be sure, harassing people in need of medical care is both illegal and immoral. There's a time and place to present legal challenges to people that are delinquent with their bills. Heading into an operating room is not that place.
As a consumer, you should be thrilled that this lawsuit was filed.