Tenet Reports Smaller Loss, Lists Obstacles

Tenet Healthcare Corp. posted its smallest loss in six quarters Tuesday and noted that its efforts to turn a profit were hampered by litigation expenses, bad publicity, uncollected patient bills and hurricanes in Florida.

The nation’s second-largest hospital chain, based in Santa Barbara, reported a third-quarter net loss of $70 million, or 15 cents a share, compared with a loss of $308 million, or 66 cents, a year earlier. Analysts surveyed by Thomson First Call had expected Tenet to post a loss of 5 cents a share.

Revenue fell 3% to $2.44 billion in the quarter ended Sept. 30. The revenue drop was offset somewhat by companywide cost-cutting and the sale of underperforming hospitals.

In a conference call with financial analysts, Tenet executives remained guarded about the future and declined to issue earnings guidance.

“When it comes to financial performances, we have not met your expectations, nor have we met our own,” said Chief Executive Trevor Fetter, who leads a new management team attempting to restore profitability at the company, which has been beset by scandals for two years.

“To a great degree, these challenges were self-inflicted by the company’s past behavior, but there have also been industrywide head winds such as the dramatic rise in bad debt expense,” Fetter said. “These pressures have made our job that much tougher.”

One problem has been patient volume. Tenet’s inpatient admissions dropped nearly 3% in the quarter on a so-called same-hospital basis, and outpatient visits fell 11.3%. Tenet blamed the decline on negative publicity over government probes as well as the hurricanes in Florida, one of Tenet’s biggest markets.

Unpaid bills also contributed to the loss. Nearly 24% of patients treated in Tenet emergency rooms during the quarter had no insurance, compared with about 20% in the second quarter. In all, Tenet hospitals provided about $392 million in uncompensated care during the third quarter.

A key part of Fetter’s turnaround is the planned divestiture this year of 27 hospitals, leaving a core of 69. The company has shed or reached deals on 20 hospitals. Analysts said Tenet’s strong cash position gave it some breathing room to try to work out its problems.

Tenet’s legal problems surfaced in late 2002 when the firm disclosed that doctors at its Redding hospital had been accused of performing unnecessary heart surgeries. At the same time, Tenet’s Medicare revenue was jeopardized by a dispute with the government over its method of billing for the sickest patients.

Since then, U.S. attorneys in several cities have opened probes into Tenet’s relationships with doctors as well as other business practices. Last month the firm went on trial in San Diego on criminal charges that its managers bribed doctors to refer patients to its Alvarado Hospital Medical Center.

Tenet also signaled a new problem for the hospital industry: a shift in insured patients to medical plans with higher deductibles and co-payments that makes bills more difficult for hospitals to collect. This trend could hurt future revenue, said Sheryl Skolnick, an analyst with Fulcrum & Associates.

“The no-pay [patients] in the beds are still a problem,” she said. “Whether they are charity care, bad debt or contract disputes, it doesn’t matter.”

Tenet’s shares rose 6 cents, closing at $10.59 on the New York Stock Exchange. The shares have fallen 34% this year.