Hospitals Face Cuts in Funding Under Medicare

Tenet Healthcare Corp. and other hospital chains could face cuts in Medicare reimbursements for the most expensive cases, under changes proposed for fiscal 2001 that begins Oct. 1.

Hospitals would need to spend at least 23% more next year to care for a patient before qualifying for extra Medicare payments for high-cost cases under a proposal by the Clinton administration published in the May 5 Federal Register.

Santa Barbara-based Tenet, which runs several teaching hospitals that typically care for high-cost patients, is the most vulnerable to such a change in so-called outlier reimbursement among publicly traded hospital companies, industry analysts said. In fact, Tenet’s earnings were shaved by 5 cents to 6 cents a share after Medicare raised by 27% the costs a hospital had to absorb to qualify for outlier payments this year, according to industry analysts.

The nation’s second-largest hospital chain could take another hit to its earnings growth if the Medicare proposal for fiscal 2001 isn’t revised, analysts said.

“It would be somewhat similar to the impact this year, but not quite as great,” said Peter Emch, an analyst at Credit Suisse First Boston Corp., who rates shares of Tenet a “buy.”

Tenet spokesman Harry Anderson didn’t return a telephone call seeking comment.

Tenet shares rose $1.75 to close at $26 on the New York Stock Exchange. The stock has risen about 10% so far this year.

Medicare, the government health-insurance program for the elderly and disabled, will account for more than 30% of the U.S. hospital industry’s 2000 revenue of $424 billion.