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MEDCATH CORPORATION

August 18, 2005

VIA EDGAR

Mr. Jim B. Rosenberg

Senior Assistant Chief Accountant

Division of Corporation Finance

United States Securities and Exchange Commission

450 Fifth Street, NW

Washington DC 20549

    Re:

    MedCath Corporation Comment Letter Dated August 4, 2005

    File No. 0-33009

Dear Mr. Rosenberg:

MedCath Corporation (the “Company” or “MedCath”), hereby submits the responses set forth below to
your comment letter dated August 4, 2005 (the “Comment Letter”) pertaining to our Annual Report on
Form 10-K for the year ended September 30, 2004 (the “Form 10-K”) and our Form 10-Q for the period
ended March 31, 2005 (the “Form 10-Q”). The responses set forth below correspond to the numbered
comments in the Comment Letter. For your convenience, we have included excerpts of your original
comments from the Comment Letter and followed them with our responses.

In preparing our responses, we acknowledge that:

    •

    the Company is responsible for the adequacy and accuracy of the disclosure in the
filings;

    •

    staff comments or changes to disclosure in response to staff comments do not foreclose
the Commission from taking any action with respect to the filings; and

    •

    the Company may not assert staff comments as a defense in any proceeding initiated by
the Commission or any person under the federal securities laws of the United States.

Form 10-K for the year ended September 30, 2004

Item 6. Selected Financial Data, page 25

    1.

    We noted that you have disclosed Adjusted EBITDA and Adjusted EBITDA, before
pre-opening expenses and that you consider this a financial performance measure. Please
tell us how you concluded that these non-GAAP measures are useful to investors and
appropriate under item 10(e) of Regulation S-K.

    We believe the use of these measures provides useful supplemental information to management
and investors regarding the performance of the Company’s operations and facilitates
comparisons to

10720 Sikes Place / Suite 300 / Charlotte, NC 28277 / (704) 708-6600 / Fax (704) 708-5035

Mr. Jim B. Rosenberg

Securities and Exchange Commission

Page 2

    historical operating results. Management and the board of directors routinely review this
information to measure the performance of our various operating entities, to compare actual
results to historical and budgeted results and to make capital allocation decisions. In
addition, our debt agreements contain similar non-GAAP measures that relate to our overall
debt capacity. Further, we believe when assessing the performance of our operations, it is
useful to exclude pre-opening expenses as these costs are not a part of the Company’s direct
cost of on-going operations. We also believe that events such as impairments of goodwill
and other long-lived assets as well as losses on debt refinancing are infrequent in nature
and therefore, make the results of our operations less comparable between reporting periods.
However, in consideration of the provisions of Item 10(e) of Regulation S-K, we will
discontinue the use of Adjusted EBITDA and Adjusted EBITDA, before pre-opening expense in
future filings of reports on Form 10-K and Form 10-Q.

Management’s Discussion and Analysis

Critical Accounting Policies

Revenue Recognition, page 30

    2.

    Please provide us the following information in disclosure-type format to help us
evaluate the adequacy of your disclosure:

    a.

    State if your billing system generates contractual adjustments...or if an
estimate of contractual allowances is made. If an estimate is made, state what
factors are considered in determining the estimate.

    The majority of our contractual adjustments are system-generated at the time of
billing based on either government fee schedules or fee schedules contained in our
managed care agreements with various insurance plans. Portions of our contractual
adjustments are performed manually and these adjustments primarily relate to patients
that have insurance plans with whom our hospitals do not have contracts containing
discounted fee schedules, also referred to as non-contracted payors, patients that
have secondary insurance plans following adjudication by the primary payor, uninsured
self-pay patients and charity care patients.

    The manual adjustments for self-pay patients, if any, and for charity care patients
are generally recognized at the time of billing. In cases where we provide discounts
to self-pay patients, the administrative leadership of the hospital determines the
appropriate amount. Charity discounts are determined by the administrative
leadership of the hospital as well, based on a review of the patient’s financial
status, economic resources relative to federal poverty guidelines and the amount of
the patient’s financial obligations.

    At each period end, we manually estimate a contractual allowance for non-contracted
payor accounts, secondary payor accounts and other accounts not systematically
discounted in order to properly reflect the discounts we expect to accept. We also
review accounts with systematically determined contractual allowances based on
additional information that may be available and make necessary adjustments in order
to properly reflect the discounts we expect to accept on final adjudication of the
claim. The primary factors we consider in determining these estimates are historical
collection experience with the payor, or similar payors, in each of our markets as
well as the relevant communications we have had with the

Mr. Jim B. Rosenberg

Securities and Exchange Commission

Page 3

    payor during our billing and collections process regarding denials, partial payments
and the patient’s account status. We adjust our estimates as new information and
facts become known throughout our collection process.

    b.

    Provide your policy for collecting co-payments.

    When possible, we will attempt to collect co-payments from patients prior to
admission for inpatient services as a part of the pre-registration and registration
processes. If unsuccessful, we will also attempt to reach a mutually agreed-upon
payment arrangement at that time. To the extent possible, the estimated amount of
the patient’s financial responsibility is determined based on the services to be
performed, the patient’s applicable co-payment amount/percentage and any identified
remaining deductible and co-insurance percentages. If payment arrangements are not
provided upon admission or only a partial payment is obtained, we will attempt to
collect any estimated remaining patient balance upon discharge. Once final charges
have been accumulated and we have billed and collected the amounts due from the
applicable third payors, we can then determine the final patient responsibility. If
the patient owes a remaining balance, we then attempt to collect through our self-pay
process as further discussed in 4.a. below. If the patient is due a refund, which
seldom occurs, we remit a refund to the patient for any excess balances previously
collected. We also comply with the requirements under applicable law concerning
collection of Medicare co-payments and deductibles. Patients who come to our
hospitals for outpatient services are expected to make payment or adequate financial
arrangements before receiving services. Patients who come to the emergency room are
screened and stabilized to the extent of the hospital’s capability for any emergency
medical condition in accordance with applicable laws, rules and other regulations in
order that financial arrangements do not delay such screening, stabilization, and
appropriate disposition.

    c.

    For each period presented, quantify and provide the amount of changes
in estimates of prior period contractual adjustments that you recorded during the
current period.

    Based on our payor mix as disclosed on page 29 of our Form 10-K and as noted in 3.a.
below, the majority of our revenue and accounts receivable relates to government and
contracted payors. Per 2.a. above, we contractualize these accounts at the time of
billing based on fee schedules. While subsequent adjustments to the systematic
contractual allowances can arise due to denials, short payments deemed immaterial for
continued collection effort and a variety of other reasons, such amounts would not be
expected to be material. Further, our information systems processing and reporting
in our patient accounting system are not configured to quantify the amount of such
adjustments as requested by the staff. Moreover, our process of manually estimating
contractual adjustments, as described per 2.a. above, is accumulated and reported
outside our patient accounting system using spreadsheet analyses that do not
interface with our patient accounting applications. Our controls over periodic
recognition of contractuals focus on the patient account reviews performed by our
business office (i.e., collections) personnel and our hospital finance teams at each
period end, rather than relying on historical trends to estimate. The smaller number
of accounts in our hospitals, due to their relative small size compared to other
hospitals in the industry, afford us the ability to focus many of our analyses and
estimates at a more detailed patient account level rather than using an
enterprise-wide, analytical model.

Mr. Jim B. Rosenberg

Securities and Exchange Commission

Page 4

    d.

    Quantify and provide the reasonably possible effects that a change in
estimate in unsettled amounts from 3rd party payors as of the latest
balance sheet date could have on financial position and operations.

    As of September 30, 2004, we had recorded a $16.7 million reduction to our
receivables to reflect our estimate of third party reimbursements pending settlement,
$9.7 million of which related to outlier payments from one of our Medicare
intermediaries that is further described on page 45 of our Form 10-K. From a
procedural standpoint, for government payors, primarily Medicare, we recognize
estimated settlements in our consolidated financial statements based on filed cost
reports. We subsequently adjust those settlements as we obtain new information from
audits or reviews by the fiscal intermediary and, if the result of the fiscal
intermediary audit or review impacts other unsettled and open cost reports, then we
recognize those adjustments through the successive years. We estimate current year
settlements based on models designed to approximate our cost report filings and
revise our estimates in February of each year upon completion of the actual cost
report and tentative settlement. As disclosed on page 23 of our Form 10-Q, the net
adjustment recorded subsequent to September 30, 2004 resulted in a $1.7 million
increase to net revenue for the period.

Allowance for Doubtful Accounts, page 31

    3.

    Please provide us the following information in disclosure-type format to help us
evaluate the adequacy of your disclosure:

    a.

    Provide in a comparative tabular format, the payor mix concentrations
and related aging of accounts receivable.

    As of September 30, 2004, our aging of receivables for the hospital division was as
follows:

    % of Receivables

    Payor

    Total

    Current to 90 Days

    90 to 150 Days

    Greater than 150 Days

    Medicare

    24
    %

    20
    %

    2
    %

    2
    %

    Medicaid

    10

    6

    2

    2

    Self-Pay

    16

    8

    6

    2

    Contracted

    43

    34

    6

    3

    Other

    7

    2

    1

    4

    Total

    100
    %

    70
    %

    17
    %

    13
    %

    As of September 30, 2003, our aging of receivables for the hospital division
was as follows:

    % of Receivables

    Payor

    Total

    Current to 90 Days

    90 to 150 Days

    Greater than 150 Days

    Medicare

    33
    %

    28
    %

    3
    %

    2
    %

    Medicaid

    7

    4

    2

    1

    Self-Pay

    17

    9

    6

    2

    Contracted

    40

    31

    6

    3

    Other

    3

    2

    —

    1

    Total

    100
    %

    74
    %

    17
    %

    9
    %

Mr. Jim B. Rosenberg

Securities and Exchange Commission

Page 5

    As noted on page 31 of our Form 10-K, the remainder of our receivables as of
September 30, 2004 and 2003 related to amounts due from billings to hospitals for
various cardiovascular care services performed or amounts due under consulting and
management contracts. The aging of these receivables is generally current in nature.

    b.

    If you have amounts that are pending approval from third party payors,
please provide the balances of such amounts, where they have been classified in
your aging buckets, and what payor classification they have been grouped with.

    As of September 30, 2004 and 2003, the only amounts pending approval for the hospital
division are related to Medicaid and as such, are included in the Medicaid category
in 3.a. above. Overall, Medicaid pending represents approximately 2% of total
receivables for both periods and is primarily included in the current category of our
aging. As a general policy, we do not recognize amounts as Medicaid pending until we
have performed a review of the patient’s eligibility and believe, based on our best
efforts, that the patient will qualify for Medicaid. Historically, we believe we
have not had significant reclassifications of Medicaid pending to self-pay; however,
we have not tracked these reclassifications and are not aware of a practical way to
formally quantify the amounts under the systems and processes in place during these
historical reporting periods.

Liquidity and Capital Resources, page 44

    4.

    Please provide us the following information in disclosure-type format to help us
evaluate the adequacy of your disclosure:

    a.

    State the steps you take in collecting accounts receivable.

    Our process for collecting accounts receivable is dependent on the type of payor as
noted below for our most significant payor classifications:

    Medicare: Our collection staff is able to access the fiscal intermediary’s web site
and verify that claims transmitted have been received and entered into their
processing system. This can generally be verified within 1-2 working days after
transmission. This access allows our staff to determine if any claims have errors or
need additional information to process. Once a claim is corrected, it enters the
payment floor for processing. Federal regulations require the fiscal intermediary to
hold claims for 14 days prior to payment, regardless of any other issues that may
exist. Once Medicare pays via electronic remittance advice, we post the payment to
the account and bill any deductible/co-payments to the patient’s supplementary
insurance. If the patient does not have a supplemental plan, the remaining amount
owed defaults to our self-pay collection cycle.

    Medicaid: None of the state administered plans in our markets currently offer an
online claim inquiry/adjudication system as in the case of Medicare. We generally
follow up via phone with the plan after 30 days if we have not received payment.
Follow-up is done with the state plans every 30 days until full payment is received
according to the state fee schedule. Any remaining balances due from the patient are
transferred to the self-pay collection cycle.

Mr. Jim B. Rosenberg

Securities and Exchange Commission

Page 6

    Insurance plans: Approximately one-half of the insurance plans are able to accept the
claim electronically while the others are sent via paper claim. Our staff generally
will follow up with the plan if we do not receive full payment within 30 days of
generation and submission of this final bill. We continue to follow up with the plan
every 30 days to secure full payment. To the extent we encounter short-payments or
denials, we have a dedicated process for investigating the discre