"Stick a fork in Tenet, it's done" RN wishing to remain secret

Home Health Columnist / Guide · Jun 24, 2003

From the Motley Fool (invesment advice website):

Tenet Spreads the Pain

Shares of Tenet Healthcare (NYSE: THC) are coughing up losses of nearly 23% today, as the hospital operator's dire earnings warning is making the market sick.

Tenet didn't give an exact number for its second-quarter earnings, but noted that through the first two months of the quarter (April and May), income from continuing operations was $0.02 a share. For the full quarter, analysts were expecting $0.34 a share.

For its third and fourth quarters, the company hopes to make a combined $0.40-$0.50 a share -- below the combined $0.70 analysts were looking for. In the 12-month period beginning July 1, Tenet anticipates earning $0.80-$1.00 a share, a substantially smaller amount than the expected $1.45.

A month after CEO Jeffrey Barbakow -- who was the highest-paid CEO in the country last year, despite Tenet's drop from $50 a share to $12 -- was forced out, the company is realizing that its self-inflicted pain is going to take some serious time to clear up. Namely, Tenet's aggressive Medicare billing practices, which it voluntarily gave up in January of this year, are making it difficult for the firm to adjust to a world where it doesn't get the bulk of its income from those sky-high outlier payments.

Additionally, Tenet is still under multiple investigations, related to those Medicare payments as well as other potential troubles within the company. The Internal Revenue Service also says that Tenet owes $269 million in back taxes and interest, a figure that's more than double what the company expected. Tenet's appealing the ruling.

Increasing costs aren't helping matters, sticking Tenet in the middle of a whirlwind of hurt generated both by industry trends and prior management's poor choices. All this leaves interim CEO Trevor Fetter with a long hard path ahead, as evidenced by his statement that Tenet's "transitional period" will extend into the first half of 2004.

Shareholders can't be certain that all the bad news is out here, a situation that's enough to make anyone feel a bit nauseous.

http://www.fool.com/news/take/2003/take030623.htm

pickledpepperRN · Jun 24, 2003

http://www.nytimes.com/2003/06/24/business/24CARE.html

Already Battered, Tenet Healthcare Reduces Earnings Forecast

By REED ABELSON

Tenet Healthcare, the struggling for-profit hospital chain, told investors yesterday to expect significantly lower profits this year than they had anticipated. The company, which is under regulatory scrutiny for its Medicare billing practices, blamed higher costs and its limited success in negotiating more favorable prices with private health plans for care.

Tenet also said it expected lower reimbursements from Medicare and state governments under Medicaid.

"We are dealing with both industry issues and company-specific issues, most importantly past pricing practices that have placed the company in an especially difficult position," Trevor Fetter, the acting chief executive, said in a statement. Mr. Fetter took over last month from Jeffrey C. Barbakow, who stepped down under pressure from investors.

Tenet said it expected what it called the current transitional period to last through the middle of next year. The company said earnings from continuing operations were likely to be around 40 to 50 cents a share for the second half of 2003, compared with Wall Street estimates of around 70 cents.

Already battered, shares of Tenet tumbled as some Wall Street analysts reduced their recommendations. The stock closed at $12.01 yesterday, down $4.22, or 26 percent, its lowest point in more than three years. Last October, the shares traded for as much as $52.50.

Tenet's announcement yesterday deepened skepticism among analysts over how quickly the company might be able to turn its fortunes around and just how profitable its business is. Tenet, based in Santa Barbara, Calif., is one of the nation's largest for-profit hospital chains, and executives had recently embarked on a comprehensive review of its operations hospital by hospital.

In terms of the company's financial outlook, "It's kind of the worst fears realized," said Kemp Dolliver, an analyst at S. G. Cowen.

Most troubling to analysts was the imbalance between Tenet's rising costs, as it pays more for labor, supplies and malpractice insurance, and its lackluster revenue growth. While Tenet experienced increases in the number of patients treated in recent months, the company had little power with insurers to significantly raise prices.

"This is a company where costs are growing seven to eight times faster than revenues," said John W. Ransom, an analyst with Raymond James & Associates.

Although the company has announced plans to cut its costs by about $350 million, Mr. Ransom estimated that Tenet would have to reduce its expenses even more significantly to return to being consistently profitable.

Tenet plans to continue to identify opportunities to reduce expenses, a company spokesman said.

Once a darling of Wall Street, Tenet fell out of favor after it became clear that much of its profitability in recent years stemmed from special payments from Medicare. By pursuing a policy of aggressively raising prices at some of its hospitals, Tenet enjoyed an unusual amount of these special payments. Although the company says it did nothing wrong, regulators are looking into these payments, and Tenet said it abandoned the practice.

In addition to forgoing significant amounts of revenue from Medicare, Tenet's posture appears to have weakened its negotiating prowess with insurers, particularly in California, where the company's hospitals were very aggressive in raising prices, analysts said. In some cases, Tenet said it was forced to lower its prices to keep its contracts, although Mr. Fetter said the company would not enter agreements that were not profitable.

While some analysts praised the company's openness in discussing its outlook, they were reluctant to predict that the worst was over. In addition to the concern over its Medicare billing, Tenet faces other regulatory investigations at some of its hospitals, and various lawsuits.

"There are numerous issues still facing the company," including the need for a permanent chief executive, said John F. Hindelong, an analyst with Credit Suisse First Boston.

What's more, industry pressures could put an additional squeeze on the company, Sheryl R. Skolnick, an analyst with Fulcrum Global Partners, said. The rest of the industry has been experiencing little in the way of growth in the number of patients treated, and Tenet could fall victim to the same trend, she said. Similarly, Tenet may provide an early glimpse into the difficulty other hospital companies will have in containing expenses like labor and supplies.

Tenet also faces other challenges. To meet its obligation under its bank credit agreement, it must reduce its debt by $500 million by the end of the year. The company is selling a dozen hospitals and says it will use some of that money to reduce its debt.

"They now just became a fire sale," Ms. Skolnick said.

"It's going to be very, very tight for them," she said. "There's no room for them to take a misstep."