The analyst who rocked Tenet Healthcare Corp. five years ago with reports on the companys reliance on Medicare outlier payments was making Tenet uncomfortable again last week. Another analyst, however, suggested that Tenet has hit rock bottom and could rebound a bit.
Ken Weakley, now with Credit Suisse Securities, wrote last week that Dallas-based Tenet may be forced to file bankruptcy in the next three years unless the fundamentals of the hospital business improve. Weakley is not the only healthcare stock analyst who has recently questioned Tenets future (Aug. 13, p. 10). When he published his reports on Tenets reliance on outlier payments in October 2002, Weakley was with UBS.
Tenet responded with a news release laying out its financial strength. The company said it had $675 million in cash on hand and has access to a $500 million line of credit, both as of June 30. The company said it expects that the cash and credit will be enough to fund the company as it continues its turnaround efforts. Tenet also noted that it has no long-term debt maturing till December 2011.
Weakley argued in his first of two research notes last week that those funds will not be sufficient. Tenet, Weakley wrote, needs to make great investments in its facilities in order to win back market share, but it is not generating the cash needed to make those investments. Absent a change in industry fundamentalssuch as a general increase in hospital volumes or bad-debt reliefTenet is painted into a corner, Weakley wrote.
Tenet, however, has contended that it is making some headway on volume. The company has pointed to a national agreement with Aetna; recruitment of specialist physicians in some markets; and its sales calls to win back business from physicians as strategies that are starting to bear fruit.
Darren Lehrich, an analyst with Deutsche Bank, upgraded Tenet shares from sell to hold last week. Lehrich wrote that the companys operations could improve a bit, with July being a positive month for patient volume.
Lehrich also wrote that a settlement of the dispute over 269-bed USC University Hospital, Los Angeles, would help volume, as the fight between Tenet and the USC School of Medicine has led to a huge shift in physician referrals. Tenets struggles and the appointment of a new medical school dean could set the stage for a settlement, Lehrich wrote.
In a separate move, a deal for Tenet to buy Stanislaus Behavioral Health Center, Modesto, Calif., for $11.1 million gained approval from a local county board. Stanislaus County is required to give any opponents to the deal 30 days to put a referendum on the ballot before the deal can go through.
County officials were scheduled to revisit the contract with Tenet on Sept. 25, which would allow the company to start taking over the hospital at the end of September.