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What Is the Reason for LifePoint’s High Salary and Wage Expenses?

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Nov. 20 2020, Updated 1:58 p.m. ET

Salaries, wages, and benefits: Major expenses for LifePoint

During 4Q15, salaries and benefits for LifePoint Health (LPNT) amounted to $652.7 million, up 6.6% in comparison with the same quarter of the previous year. Recent acquisitions coupled with a rise in the number of employed physicians and support staff drove the expense.

For further information on the company’s expenses, please refer to Salaries dominate operating expenses at LifePoint Hospitals.

The salaries and benefits expense as a percentage of revenue has been steadily moving in the range of 47.5%–48.5%. During 4Q15, it fell to 47.6% of revenue, depicting a fall of 90 basis points year-over-year. This reflects effective cost management by the company, as salary constitutes a major chunk of operating expenses.

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Same-facility salary, wages, and benefits expense

The same-facility salaries, wages, and benefits expense with respect to revenue fell by 110 basis points during 4Q15.

Industry peers such as HCA Holdings (HCA), Community Health Systems (CYH), and Universal Health Services (UHS) spent ~45%–49.5% of their revenues on salaries.

Inorganic growth strategy

LifePoint is consistently growing through acquisitions. Recently, it acquired two Providence Hospitals in Columbia and South Carolina. These transactions were closed on February 1, 2016, and will add ~$1.3 billion to 2016 revenue.

As per LifePoint’s strategy, scale expansion provides a margin improvement opportunity, and the output will be visible in the span of two to three years. The company strategy is to acquire hospitals with low single-digit EBITDA (earnings before interest, tax, depreciation, and amortization) margins and bring their margins to the low double-digit range.

To diversify the risk of investing directly in the equity of LifePoint, investors can look into options such as the iShares S&P Mid-Cap 400 Value ETF (IJJ). IJJ has 0.43% of its total holdings in LifePoint.

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