Tenet profits triple

January 14, 2003 Posted: 05:05:10 AM PST

By GARY GENTILE
THE ASSOCIATED PRESS

LOS ANGELES -- Profits at Tenet Healthcare, the nation's second-largest hospital chain, more than tripled in the second quarter, although the company warned investors not to expect similar results in the future as Tenet adopts stricter Medicare reimbursement guidelines.

Net income at the troubled company was $315 million, or 64 cents per share, compared to $89 million, or 18 cents per share in the same quarter last year, Tenet said Monday.

Not counting a one-time loss and adjusting for a stock split, operating income was $355 million, or 72 cents per share, compared to $279 million, or 56 cents per share in the same quarter last year.

Tenet operates Doctors Medical Center in Modesto and Doctors Hospital of Manteca.

Financial analysts surveyed by Thomson First Call had been expecting 69 cents per share.

Based on the stricter guidelines, Tenet revised its estimates for full-year earnings to a range of $2.40 to 2.60 per share. The company had previously said it expected full-year earnings in the range of $2.38 to $2.78 per share.

Admissions at Tenet's 114 hospitals increased in the second quarter ended Nov. 30.

Inpatient revenue per admission on a same facility basis increased 7.2 percent in the quarter.

Total revenues were $3.778 billion, up 11.3 percent from $3.394 billion in the same quarter last year.

Tenet chief executive Jeffrey Barbakow said the results show continued strength of the company's core business. He said Tenet had not seen a significant loss of physicians or managed care contracts in the quarter.

Tenet's stock has plunged nearly 70 percent since late October, when questions arose over the company's reliance on supplementary Medicare payments to boost revenue.

The so-called "outlier" payments" are designed to reimburse hospitals for extra care given to the sickest patients beyond fixed charges set by Medicare.

In November, federal authorities launched an audit into Tenet's outlier payments, which contributed half of the company's growth in earnings from 1999 to 2002. That was a dramatic increase from previous years and far above state and national averages.

Tenet was also rocked by investigations of allegations that two doctors at a hospital in Redding performed hundreds of unnecessary heart surgeries, and that doctors at a hospital in San Diego might have paid to recruit patients.

Last week, the Justice Department sued Tenet for allegedly overbilling Medicare to inflate its revenues from 1992 to 1998. The government said Tenet overcharged Medicare for certain procedures by using improper diagnosis codes for hospital stays.

In the second quarter, outlier payments increased 31.5 percent to $213 million, compared to the same quarter last year, the company said. The payments were down 18 percent from the first quarter.

Tenet recently said it would adopt voluntary guidelines that mirror changes expected to be made this year by Medicare.

The new guidelines would reduce outlier payments from approximately $65 million per month to about $8 million per month starting Jan. 1.

The company also announced that Michael H. Focht Sr., who retired as president and chief operating officer in 1999, would return as executive vice chairman.

Tenet said the appointment would last one to two years as Focht helps current management deal with the issues facing the company.

For the six months ended Nov. 30, Tenet reported net income of $653 million, or $1.32 per share, compared to $244 million, or 49 cents per share for the same period last year.

Shares of Tenet were up 80 cents, or 4.8 percent, to $17.65 each in afternoon trading on the New York Stock Exchange.

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