Tenet Healthcare Tops Estimates

More patients who pay help the bottom line.
By Melissa Davis ,

OKLAHOMA CITY --

Tenet Healthcare's

(THC) - Get Report

vital signs continue to improve, thanks to an uptick in patients who actually pay their bills.

The long-suffering hospital chain did swing to a $31 million loss in the first quarter, as litigation costs more than offset operational gains. Excluding special items, however, the company posted earnings of 4 cents a share -- 3 cents ahead of Wall Street's modest expectations.

Revenue of $2.37 billion, up a healthy 6.7% from a year ago, topped the consensus estimate as well.

Quite simply, Tenet attracted more patients with health insurance -- and charged them higher prices for their treatment -- than it did a year ago. The company reported widespread improvements as a result.

Notably, for the first time since early 2004, Tenet managed to increase patient volumes for two quarters in a row. Same-hospital admissions rose a full percentage point, with insured patients providing the boost for a change. Volumes remained strong through April, too, signaling possible continuation of this positive and all-important trend.

"Our growth strategies are working, as evidenced by this strong financial performance, the success of our physician relationship effort and increases in patient volumes in many of the service lines identified by our Targeted Growth Initiative," Tenet CEO Trevor Fetter stated on Tuesday. "I am very pleased with the progress we've made."

Tenet's stock was off 2 cents to $6.45 in recent trading.

Still, Tenet outshined the rest of the hospital group on Tuesday.

Community Health Systems

(CYH) - Get Report

, the largest publicly traded hospital chain, fell 3.9% to $34.73. Two rural hospital chains,

Health Management Associates

(HMA)

and

LifePoint

(LPNT)

, lost some ground as well.

But Tenet may have enjoyed its earnings bounce a couple of weeks ago. Back then, Tenet's stock soared more than 20% after Credit Suisse analyst Kenneth Weakley -- an influential Tenet bear -- started recommending the company's shares for the first time in years.

Sheryl Skolnick, senior vice president of CRT Capital Group, feels that Weakley's upgrade may have "stolen" the rally that Tenet's strong first-quarter results would have caused.

"So investors made money two weeks early," she shrugged. "That's OK."

Skolnick herself has been urging investors to buy Tenet's stock for a while. Even when the stock fell below $4, as it did last fall, she felt convinced that it would eventually rebound -- and ultimately more than double -- over the course of the next two years.

Skolnick saw plenty of reason to celebrate in the meantime. She felt particularly impressed with Tenet's first-quarter earnings before interest, taxes, depreciation and amortization.

Excluding special items, same-hospital EBITDA soared 23% to $239 million in the recent period. Meanwhile, EBITDA margins expanded from 8.7% to 9.9% -- approaching double-digit territory for the first time in recent memory.

"Never in my wildest dreams did I think that would happen by this quarter," Skolnick declared. "And I'm a bull!"

Skolnick credited rising volumes and "great" managed care pricing for the recent gains.

Total managed care admissions, including cases covered by increasingly popular Medicare Advantage plans, climbed 2.3% during the quarter. Medicaid admissions increased as well, rising 3.9% during the period, as the government covered more patients who were once written off as charity care.

Still, Tenet continues to face clear challenges. Perhaps most troubling, commercial managed care admissions -- representing the most profitable cases of all -- dropped 3.7% in the first quarter. Surgery cases, which are also quite lucrative, declined on both an inpatient basis and an outpatient basis as well. Meanwhile, uninsured admissions rose another 5.4%, triggering an 11% jump in bad-debt expense.

However, even those metrics have looked weaker in the past. Thus, overall, the results continued to signal progress in the company's hard-fought turnaround.

"I'm very pleased," Skolnick concluded. "Sometimes, you just gotta believe."

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