Tenet Delivers Best Performance in Four Years, But Bad Debt Expense Rises 8 Percent

Strong admissions growth and better contract terms with managed care providers helped hospital operator Tenet Healthcare Corp. cut its year-over-year second quarter losses by 50 percent.

The Dallas-based company said it lost $15 million, or 3 cents a share, for the second quarter ended June 30, 2008, compared to a $30 million, 6 cents a share, loss in the second quarter of 2007. Revenue increased 6 percent to $2.2 billion.

Tenet said the 2008 second quarter earnings include charges of 3 cents per share for a California residency program and for discontinued operations from hospitals being sold. Excluding the one-time charge, Tenant posted break-even results and actually beat analysts’ expectations of a loss of 1 cent per share.

"This is the best result that we've generated in more than four years and includes solid growth in both surgeries and paying admissions," CEO Trevor Fetter said during a Tuesday conference call with analysts.

Tenet, however, continued to struggle with climbing bad debt expense. The company said its provisions for unpaid medical bills increased 8 percent to $153 million from $142 million a year earlier. Total uncompensated care expense was $298 million in the second quarter, up from $292 million in the year ago period.

Tenet said bad debt expense increased primarily due to higher uninsured revenues, pricing increases and improvement in charges applied in its emergency departments. The impact, however, of those changes were partially offset by higher collections at point-of-service and improved collection trends primarily related to self-pay accounts.

Until late last year, Tenet has suffered dramatic declines in admissions as doctors referred their patients to other hospitals. Tenet’s efforts to repair its relationship with physicians showed in the second quarter. The company said it added 354 doctors, which showed in admissions and outpatient surgeries.

Admissions at hospitals open at least a year climbed 1.9 percent while surgeries increased 2.3 percent. Tenet said pricing increases were also strong with managed care revenues at hospitals open at least a year up 7.5 percent. Overall, inpatient revenue per admission was up 2.4 percent in the quarter.

“We expect the increasing number of physicians on the medical staffs of our hospitals will prove to be a robust leading indicator of our ability to sustain our positive trend in volumes,” Tenet’s chief operating officer, Stephen L. Newman, M.D, said in a press release.

Tenet revised its 2008 outlook to reflect the reclassification of the earnings of USC University Hospital to discontinued operations. Tenet now expects full year net income to range from a loss of 10 cents a share to a profit of 5 cents a share.