Managed care again was to blame as Tenet Healthcare Corp. last week released lower-than-expected earnings figures.
But the nation's second-largest investor-owned chain attempted to take the edge off the bad news by announcing a joint venture in Florida with the Cleveland Clinic (See story, this page).
In a conference call with stock analysts, a cadre of top Tenet officers gave three reasons-all related to managed care-for what amounted to a 5-cent per-share drop in expected earnings.
The earnings figures for the fourth quarter ended May 31 represent the first quarter of results following National Medical Enterprises' $2.3 billion March acquisition of American Medical International to form Tenet.
Noting Tenet's longstanding experience in California, it's difficult to understand how "ill-prepared they were for what was an inevitable shift in the payer mix," said Jeff Villwock, healthcare analyst for Johnson Rice & Co., a New Orleans-based investment banking firm.
The cited culprits include:
In Los Angeles, 161-bed Century City Hospital experienced a $9 million drop in fourth-quarter earnings. Officials said the hospital's business had been strong during last year's earthquake, and when it dropped off executives realized the hospital had been frozen out of most managed-care networks.
In El Paso, Texas, traditionally strong Sierra Medical Center posted a fourth-quarter earnings drop of $3 million after it was forced to "significantly discount" charges to satisfy payers.
In Modesto, Calif., the company's only HMO, National Health Plan, reported a $6.6 million drop in fourth-quarter earnings, stemming primarily from its Medicare-risk HMO. The plan has 80,000 enrollees, of which 10,000 are Medicare beneficiaries.
Utilization by the plan's Medicare enrollees was 1,550 inpatient days per 1,000 enrollees, compared with less than 1,000 at many other Medicare HMOs.
All three operations were formerly part of Santa Monica, Calif.-based NME.
In reaction, Tenet replaced top executives at both Century City and National Health Plan.
In addition, two top administrators of Tenet's St. Joseph Center for Mental Health in Omaha, Neb., left this month, and the facility may be up for sale. Tenet acquired the hospital as part of its March merger with AMI. But because of Tenet's settlement of fraud charges with the government last year, Tenet cannot operate psychiatric hospitals.
For the fourth quarter ended May 31, Tenet's earnings dropped 8% to $5.9 million, or 3 cents per share, compared with $6.4 million, or 4 cents per share, in the year-ago quarter. Revenues increased 95% to $1.35 billion. The revenue jump stems from the AMI acquisition.
For the year, the company reported profits of $165 million, or 91 cents per share, compared with a net loss of $424.9 million, or $2.54 per share, in the previous year. The previous year's figures included a $701 million write-down on the company's psychiatric operations. Revenues grew 13% to $3.3 billion.
Noting "this is a tough industry," Tenet's chairman, Jeffrey Barbakow, put a positive spin on the earnings announcement for stock analysts. He noted the chain's proceeds from the sale of international operations and its pending acquisitions in New Orleans and El Paso.