As Tenet Healthcare Corp. was poised to announce more hospital sales, it dumped a disappointing year-end earnings release on the market last week.
Santa Barbara, Calif.-based Tenet, the nation's second largest for-profit hospital company, was one exception to a generally satisfactory batch of quarterly earnings releases from hospital companies.
Tenet officials announced early this year that they wanted to divest 20 hospitals. The University of Missouri is buying one of them: 265-bed Columbia (Mo.) Regional Hospital (July 26, p. 4). Rural hospital company Province Healthcare, Brentwood, Tenn., may be buying as many as three more in the Southwest, according to sources familiar with the deal.
For the fourth quarter ended May 31, Tenet posted a net loss of $137 million, including $363 million in charges for asset write-downs and overhead cuts. In last year's fourth quarter, Tenet reported a $141 million loss.
Tenet officials blamed declining Medicare payments for dragging earnings down by 20 cents per share for the year. Federal reimbursement cuts are likely to cost the company $100 million in fiscal 2000, said Tenet Chairman and Chief Executive Officer Jeffrey Barbakow. He told analysts on a conference call that the company's earnings from operations may rise only slightly in fiscal 2000.
"These cuts, plus other challenges, prevented us from showing improved results over the prior year," he said in a written statement.
One of the other challenges is bad debt from the eight Philadelphia-area hospitals Tenet bought out of bankruptcy from Allegheny Health, Education and Research Foundation last year for $345 million.
Tenet's bad debt rose to 7.1% of revenues during the quarter from 5.5% in the year-ago quarter. For the year, bad debt was 6.8% of revenues, up from 5.9%, the company reported.
In spite of Medicare cuts, Tenet's revenues for the quarter rose 14% to $2.94 billion from $2.57 billion in last year's fourth quarter, and to $10.9 billion in 1999 from $9.9 billion in 1998.
In comparison, Columbia/HCA Healthcare Corp.'s earnings for the second quarter ended June 30 were received warmly by analysts. Columbia managed to beat analysts' earnings expectations by a penny per share. Earnings per share, excluding gains on sales of facilities, impairment of long-lived assets and restructuring- and investigation-related costs, hit 31 cents, higher than Boston-based First Call Corp.'s estimate of 30 cents per share.
Net income was $106 million, compared with $78 million in the same quarter of 1998. Revenues for the quarter were $4.2 billion, down from $4.8 billion in last year's second quarter.
The Nashville-based company has 220 hospitals, 115 fewer than a year ago. Victor Campbell, senior vice president, declined to discuss whether Columbia has progressed in talks with the federal government to settle several civil Medicare fraud lawsuits against the company. The feds also are investigating the company and its executives for possible Medicare fraud.
To date, that criminal investigation has led to the convictions of two midlevel Columbia executives (July 5, p. 4).
"I think that generally speaking, Columbia has been effective in getting investor expectations down low enough that there won't be any disappointments. And I think by the same token, Tenet is in the process of attempting to accomplish the same," said John Hindelong, healthcare analyst at Donaldson, Lufkin & Jenrette in New York. "I think that Columbia is today where Tenet hopes to be in six months in terms of showing demonstrable earnings progress relative to expectations."
Columbia spinoff company LifePoint Hospitals, a group of 23 rural hospitals that became its own publicly traded company in May, also pleased analysts last week. The Nashville-based company reported revenues of $128.2 million for the second quarter ended June 30, up from $124.4 million in last year's quarter. Net income was $1 million, down slightly from $1.5 million.
Adjusting for debt assumed from Columbia and overhead expense, and excluding operating results of three hospitals LifePoint is holding for sale, the company's quarterly revenues were up 4.2% from last year, and earnings per share were up 50%.
Dallas-based Triad Hospitals, the other Columbia spinoff company, is releasing its quarterly earnings statement in August.
Province, which operates 13 primarily rural hospitals and is hoping to double that total, reported that net income for the second quarter ended June 30 rose to $3.3 million from $2.1 million in the year-ago quarter. Revenues jumped 43% to $81.2 million from $56.6 million.
Company officials said they have 14 acquisitions in the pipeline, with letters of intent signed on three of them. Merilyn Herbert, Province's vice president of investor relations, declined to discuss specifics of the deals, including when they would be announced.