Torrent of Unpaid Bills Soaks Triad

Triad (TRI Quote - Cramer on TRI - Stock Picks) has just suffered a relapse.

The same bad-debt problem that hurt third-quarter results -- and hammered the company's shares -- is expected to eat away at earnings for at least another year. After monitoring its vital signs for the past six weeks, Triad has darkened its outlook for both the fourth quarter and 2004. The company, which plans to formalize its prognosis later this month, has warned in the meantime that it's already headed toward the low end of analysts' earnings expectations. It blamed a crippling bad-debt problem that has only worsened since it was first diagnosed in October.

The company said on Monday that consensus estimates for both the fourth quarter and 2004 are now "in the upper end of the company's own preliminary range." Prior to Monday's update, analysts were expecting the company to deliver profits of 48 cents a share for the quarter and $2.35 a share for the year.

The problem isn't Triad's alone, and it's not going away anytime soon, judging by a look at the company's peers. Triad believes that bad debt will continue to hurt its performance in coming periods, and its two larger peers -- HCA (HCA Quote - Cramer on HCA - Stock Picks) and Tenet (THC Quote - Cramer on THC - Stock Picks) -- are also weathering bad-debt problems, due to a weakened economy that has led many companies to cut health insurance benefits for their employees. Hospitals typically collect just a fraction of the amount owed by under- or uninsured patients.

The provision for bad debt "is subject to further change prior to the company's release of earnings guidance, in the event collection performance changes measurably and significantly," Triad stated. "Even after the company issues earnings guidance, the company expects this expense will continue to be subject to change -- possibly positive or negative -- throughout 2004."

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