Tenet On Road to Recovery

Once regarded by doctors as hostile and arrogant, Tenet now goes out of its way to court physicians instead. During the third quarter, Tenet personally visited nearly 6,000 doctors -- up 60% from the year before -- and managed to add hundreds of them to its physician base as a result.

Meanwhile, Tenet's new "commitment to quality" has impressed both physicians and health insurers. In the past, Tenet relied on high prices, rather than superior care, to boost its performance and posted low quality scores as a result. But under its current strategy, adopted in 2004, Tenet now boasts quality scores well above those of its peers.

Health insurers, seeking top-notch care that promises few complications, have taken notice. Tenet hospitals are six times more likely to carry UnitedHealth's (UNH) coveted "center of excellence" designation -- triggering generous bonus payments -- than are facilities outside the company's system. Aetna (AET) and Blue Cross have rewarded the company with higher rates as well.

"The world is moving toward a pay-for-performance model," Tenet CEO Trevor Fetter emphasized during an investor conference hosted by Merrill Lynch in late November. "And our commitment-to-quality strategy was really designed to put us ahead of that curve."

That strategy paid off handsomely in the latest quarter. More than anything, rising prices boosted the company's results. Operating revenue jumped by 7.5%, the highest rate in a while, despite an ongoing decline in admissions.