Reporting a quarterly loss of more than $2 billion is never a good thing, but for Tenet Healthcare Corp. the 10-digit loss may be beside the point.
Physicians likely hold the key to a turnaround at Dallas-based Tenet, said Kemp Dolliver, healthcare analyst and managing director at SG Cowen & Co., Boston. Tenet's ability to lure physicians back into the fold will decide whether the company generates the patient volume it needs to become profitable, Dolliver said.
"They need to do whatever they can to repair relationships with physicians," he said, "whether that's just going and groveling to key practices in their markets or investing what they can in some of their hospitals to bring them back up to par competitively."
Discussing its fourth-quarter and fiscal 2004 earnings last week, Tenet said 80% of its admissions come from the top one-quarter of physicians ranked by their admissions. The other 75% of the physicians number nearly 9,000, and the company sees those so-called splitter physicians who admit patients to other hospitals as a business opportunity. Chief Operating Officer Reynold Jennings said Tenet needs to improve the equipment and efficiency of some of its hospitals to draw a few more patients each, on average, from the splitter physicians. "The cup is half-full, not half-empty," he said.
Tenet said it lost $2.46 billion in 2004 on revenue of $9.92 billion and $2.02 billion for the fourth quarter on revenue of $2.41 billion as the company took $2.37 billion in pre-tax charges for the quarter. Most of the charges were related to restructuring operations and writing down the value of its hospitals. The only significant cash charge was a $395 million settlement of patient malpractice claims against former Redding (Calif.) Medical Center.
Despite the huge paper losses, Dolliver said Tenet is not in serious danger of financial collapse. Once the company receives an expected tax refund of $530 million in April, Tenet said, it will have about $1.3 billion in cash on its balance sheet, and the company has no significant debt maturities until 2011.
Tenet is hampered by a cloud of investigations, especially the physician kickback case against its Alvarado Hospital Medical Center in San Diego. The hospital, a Tenet subsidiary and former Alvarado Chief Executive Officer Barry Weinbaum already have faced trial on charges that they conspired to offer physicians illegal inducements to make referrals, but a jury in U.S. District Court in San Diego was unable to reach a verdict, prompting a mistrial. U.S. District Judge M. James Lorenz late last week upheld 18 counts in the case but dismissed two other counts. The upheld counts included conspiracy to violate federal antikickback laws. The defendants had sought a full dismissal, contending the prosecution had failed to prove its case. Tenet said the retrial, originally scheduled for March 29, will be delayed until May.
Separately, Tenet reached an agreement to settle lawsuits in nine states alleging that the company overcharged uninsured and underinsured patients for prescription drugs and other medical products and services. In its annual 10-K securities filing, Tenet said it had reserved $30 million for claims made under the settlement. The deal requires court approval. Under the settlement, Tenet would set up a process to administer claims made by self-pay patients treated at Tenet hospitals from June 15, 1999, to Dec. 31, 2004. Tenet also agreed to some limits on its billing and collection practices, mirroring the "Compact with the Uninsured""that the company began implementing last year.
E. Peter Urbanowicz, Tenet's general counsel, said again last week that the Alvarado case has not halted broader settlement discussions with the government, which has probed Tenet's Medicare outlier payments and physician recruitment practices in California, New Orleans, St. Louis and El Paso, Texas. Tenet also faces a racketeering lawsuit over its outlier payments in U.S. District Court in Miami brought by the Florida attorney general on behalf of the state's public hospitals that could be joined by other states (March 7, p. 12). Tenet said Boca Raton (Fla.) Medical Center brought a similar suit in the same court.
Dolliver said Tenet may be making progress in its negotiations with the government, but he noted that the government seems to wrap up its settlements late in the year. Lifting the investigation cloud may convince physicians that it is safe to come back to Tenet hospitals, he said.