Tenet To Consolidate Hospital Business Offices
And Standardize Information Systems

 

SANTA BARBARA, Calif. - June 13, 2003 - Tenet Healthcare Corporation (NYSE: THC) today announced plans to consolidate its hospital business offices and standardize patient accounting and related information systems. These initiatives are expected to generate long-term cost savings while enhancing Tenet's ability to capture and rapidly analyze a broader range of its hospitals' financial and operating information.

Over the next three years, Tenet will consolidate operations that conduct billing and collection activities for all of its hospitals from 56 business offices, including 17 central business offices and 39 hospital billing offices, into eight regional business offices and one center to process Medicare transactions. The consolidation will leverage existing billing office locations to minimize disruption and expense. Tenet expects to reduce its current billing and collection staff of 3,200 people by approximately 300 positions over the implementation period. Where possible, alternative employment opportunities within Tenet will be identified for affected employees.

Concurrent with this consolidation, Tenet also will standardize the key technology support systems involved in patient accounting and central business office management from six different systems to a single uniform platform, which is already in place in a majority of Tenet hospitals. While the company's hospitals currently operate on standardized systems for general ledger accounting, materials management and payroll, this broader standardization initiative will allow Tenet more rapid access to a wider range of financial information and operating detail on a consolidated basis than is currently available. It also will improve support for managed care adjudication, electronic claims processing, medical records coding, compliance administration, and electronic patient files and document management.

The patient accounting platform that Tenet has selected, called PBAR, is currently in place in approximately 60 percent of its hospitals. Over the past several years Tenet has successfully migrated a number of individual hospitals to this platform and has been pleased with its functionality, stability and ease of implementation.

"Tenet's strategic decision-making capabilities will benefit from moving to a single uniform patient accounting system, which will improve our ability to more rapidly and efficiently analyze many aspects of our hospital portfolio," said Stephen Farber, Tenet's chief financial officer. "Billing consolidation also is consistent with our aggressive focus on streamlining the organization, increasing efficiency and reducing costs. Although these initiatives will require some incremental costs in the near term, we expect substantial returns in terms of improved analytical capabilities, better customer service and ongoing savings in future years. Importantly, these consolidations and system improvements will be implemented without disrupting patient care or affecting our financial reporting capabilities."

Over the three-year implementation period, Tenet expects to invest approximately $100 million of its currently budgeted capital expenditures, as well as incur a total of approximately $175 million of incremental operating expense for training, installation and other implementation costs. Of the total $275 million investment, approximately 20 percent will be invested in calendar 2003, approximately 45 percent in calendar 2004, with the remaining 35 percent being invested during calendar years 2005 and 2006.

Tenet expects to achieve recurring annual savings of at least $75 million from lower administrative and operating costs, reduced bad debt, and interest savings from the reduction in accounts receivable. This recurring savings will be increasingly realized over the second half of the 36-month implementation period, and should reach the full $75 million annual run-rate within six months after completion. In addition, Tenet expects to achieve a one-time reduction in accounts receivable of at least $100 million upon completion. The company does not expect to realize any financial benefits during the first half of implementation, but as stated above, will incur the majority of the implementation costs during this time.

The eight consolidated offices will be located in South Florida, Philadelphia, Dallas, New Orleans, Atlanta, St. Louis, Modesto, Calif., and Alhambra, Calif.

The initiatives announced today are part of a series of recent moves by Tenet to address the company's challenges and position it for future growth. Since December, the company has, among other things, (1) announced a strategic alliance with the Service Employees International Union (SEIU) and the American Federation of Federal, State, County and Municipal Employees (AFSCME) designed to strengthen the company's business position, (2) announced a decision to sell non-core assets, reduce operating expenses, and accelerate share repurchases as part of its plan to sharpen its strategic focus, (3) begun expensing the cost of stock options granted to executives, (4) changed to a calendar year for financial reporting to enhance comparability with other hospital companies, (5) adopted a new policy on Medicare outlier payments, (6) restructured its operating divisions and regions, (7) promoted its top hospital executives to the senior executive management team, (8) placed a seasoned hospital executive who is also a medical doctor in charge of its large California market, (9) announced a comprehensive set of initiatives designed to enhance corporate governance that included naming two strong independent directors to our board with an additional two directors to follow, and (10) established a groundbreaking new policy for uninsured patients that includes an offer, subject to government approval, of managed care-style pricing.