Tenet Healthcare Corp. reported first-quarter results that came close to being its first profitable quarter since 2002, but the company isn't wavering from its public outlook that break-even is its best-case scenario this year.
Tenet posted a loss of $3 million, or 1 cent per share, for the first quarter, reversing a loss of $122 million, or 26 cents, in the year-ago quarter. Revenue was down 2.9% to $2.5 billion.
The Dallas-based company needs patient volume to rise, because that and restoring its ability to boost reimbursements in managed-care contracts are key to its recovery.
Tenet said it has been able to negotiate rate increases of roughly 5% to 9% with insurance companies after two years when it had a weak negotiating position caused by its strategy of sharply increasing its gross charges, or list prices. Those charges affect the rates insurers pay for some patients, just as the charges brought Tenet much higher than normal Medicare outlier payments till 2002, when attention was focused on Tenet's gross charges.
But the company continues to face a significant challenge to increasing volume from physicians who split their admissions between Tenet hospitals and their competitors, the result of two years of bad publicity and uncertainty over the future of the company's hospitals, Tenet said.
Reynold Jennings, Tenet's chief operating officer, said the company has conducted some focus group meetings with so-called "splitter" physicians to find out what they want. One key demand was a stable management team, Jennings said, but Tenet has turned over 80% of its top 100 management positions in the past 21/2 years, including many hospital chief executive officers. Jennings said it would take some time for the newer hospital CEOs to build a rapport with physicians.
The physicians also indicated that they need to know more about the long-term plans at their hospitals and how those plans could affect their specialties. To that end, Jennings said, hospital CEOs are working on five-year capital plans. "The problem is more when they read negative media reports," Jennings said. "They read between the lines and think their hospital is going to be affected." This problem has been most pronounced in California and South Florida, he said.
The meetings with groups of 10 to 20 physicians paid off with about 200 more admissions per focus group in the quarter, Jennings said.
Overall, Tenet said patient volume stabilized somewhat compared with 2004's levels, with admissions down 1.2% from the year-ago quarter but up 5.3% compared with 2004's fourth quarter. Outpatient visits fell by 10.1%, to nearly 1.4 million, but the company said half of the decline was attributable to the sale of its home health agencies. Tenet either sold or entered into agreements to sell all of its home health businesses in 2004.
Frank Morgan, a healthcare stock analyst for Jefferies & Co., said in a research note that the outlook remains cloudy for Tenet. Morgan wrote that the steady drumbeat of legal issues is likely to continue disrupting hospital operations. Recently, Tenet learned that Securities and Exchange Commission investigators plan to recommend bringing a civil enforcement action against the company and six former executives relating to its financial disclosures about its Medicare outlier payments. Jury selection began last week in U.S. District Court in San Diego for the retrial of Tenet's Alvarado Hospital Medical Center, former Alvarado CEO Barry Weinbaum and a Tenet subsidiary.
Tenet's results also were improved by the progress in its divestiture program, in which 22 of the 27 earmarked hospitals have been sold. Compared with 2004's first quarter, the company trimmed its operating loss on discontinued operations to $38 million from $82 million and its asset impairment charge to $7 million from $137 million. The company also received a $537 million tax refund in the quarter, as the company was able to offset taxes paid in past profitable years with losses from 2003 and 2004.
Tenet reported some progress on bad-debt expense, which declined to 11.3% of revenue, compared with 12.7% of revenue in the year-ago quarter, with adjustments for changes in its billing policies.