Tenet Expects Loss on $1Billion in Charges
In one of its last acts as a California company, Tenet Healthcare Corp. warned Monday that fourth-quarter charges could exceed $1 billion, resulting in a bigger loss than in the third quarter.
In addition, Tenet said it would do no better than break even in 2005. The nation’s second-largest hospital chain, which is moving its headquarters to Dallas from Santa Barbara on Jan. 3, said it would begin “a number of significant additional cost-reduction initiatives” but gave no details.
Analysts had expected Tenet to end a run of eight straight losing quarters and post a modest profit in 2005, excluding one-time items.
Tenet said Monday that its best hope for 2005 was to staunch further bleeding from low admissions and bad debt. The company faces growing competition from private outpatient centers for the best-paying clients and is selling 27 hospitals -- 19 in California -- in its push to return to profitability.
But analysts say that the company’s prospects ride on clearing up its legal troubles, including a federal trial in San Diego, where two Tenet hospital executives are being tried on charges of conspiracy and violation of an anti-kickback law.
In the last two years, Tenet has been investigated over the way it billed Medicare for its sickest patients and allegations of unnecessary heart surgeries at a Redding hospital. Tenet is in talks that could result in payments of more than $1 billion to settle hundreds of claims of unnecessary heart surgeries and to end most of the federal investigations into the chain’s operations, which include probes into Tenet’s relationships with doctors and other business practices in several cities.
“The underlying fundamentals will continue to deteriorate until they resolve some important matters,” said Sheryl Skolnick, an analyst with Fulcrum Global Partners. “If Tenet prevails in San Diego
Tenet’s battered stock dropped 97 cents, or 8%, to $11.07 on the New York Stock Exchange. The stock has fallen by about a third this year.
In November, Tenet reported a third-quarter net loss of $70 million, its smallest in six quarters, citing litigation costs, bad publicity, uncollected patient bills and hurricanes in Florida, one of Tenet’s biggest markets. Its third-quarter operating loss was $52 million. On Monday, Tenet officials said that they expected to finish 2004 “below comparable third-quarter results” because of weak hospital admissions and high debt.
“We have made significant progress toward resolving the numerous problems that Tenet has faced over the past two years,” Tenet Chief Executive Trevor Fetter said in a statement. “This has been more difficult and is taking longer than anyone could have anticipated.”
Tenet and other hospitals are suffering from a raid on the most profitable patients by outpatient surgery centers, said Argus Research analyst David H. Toung.
“What do the hospitals have left? They have uninsured patients, Medicare patients, which means less profit,” Toung said.
Tenet’s inpatient admissions dropped nearly 3% in the third quarter and outpatient visits fell 11.3%. Tenet hospitals provided about $392 million in uncompensated care for uninsured patients during the quarter.
Tenet has been working since January to whittle the company to a core group of 69 hospitals. Of the 27 hospitals on the block, 11 sales have been completed and agreements have been reached on 11 others, Tenet said.
No deals have been announced for Brotman Medical Center in Culver City, Community Hospital and Mission Hospital of Huntington Park, and the two campuses of the Encino-Tarzana Regional Medical Center.
