Tenet

(THC) - Get Report

has just endured one of its lousiest checkups yet.

Even excluding the pain caused by Hurricane Katrina, the ailing hospital chain reported a third-quarter operating loss of 16 cents a share that was far worse than the 5-cent loss Wall Street had been anticipating. Discounts and write-offs for the uninsured, which soared to 15.1% of the company's revenue, triggered much of that miss.

Still, Tenet continues to label patient volumes -- which slid yet again in the latest quarter -- as the company's "greatest challenge."

To be fair, Hurricane Katrina wiped out plenty of business at Tenet's New Orleans operations during the latest quarter. It helped push total admissions down 3.3% and total revenue down 1.7% to $2.39 billion, just shy of the $2.4 billion consensus estimate. Even worse, it triggered massive charges that played a big part in widening the company's loss from $70 million a year ago to a whopping $408 million in the latest period.

But Tenet would have suffered regardless. Excluding its hospitals in New Orleans, the company still weathered a 1.4% decline in same-hospital admissions during the third quarter. Admissions of commercially insured patients, typically the most lucrative of all, fell an even harder 4.3%.

Meanwhile, Tenet found itself treating more and more uninsured patients who fail to pay their bills -- a situation simply made worse by Hurricane Katrina. All told, the company provided $560 million worth of uncompensated care during the quarter, up 12.4% from a year ago.

As a result of these negative trends, Tenet no longer expects to meet its goals for the year.

"Prior to this quarter, we had expected to achieve our financial objectives for 2005, as our cost initiatives proved sufficient to offset volume shortfalls up to that point," said outgoing Tenet CFO Robert Shapard. But "the hurricanes and continuing soft patient volumes are likely to cause us to fall short of our initial objectives for 2005."

In the meantime, Tenet has offered no guidance for 2006 at all. Tenet's stock fell 2.4% to $8.22 a share -- within 20 cents of a multiyear low -- on the latest disappointment and lingering uncertainty about the company's future.

Three Strikes

Peter Young, a business consultant at HealthCare Strategic Issues, pointed to three major areas of concern in Tenet's latest results.

For starters, he stressed, physicians are clearly referring fewer patients to the company's inpatient and outpatient facilities. He expressed particular concern about outpatient cases -- down 4.3% from a year ago -- that tend to be especially profitable.

"The industry migrates to outpatient" business, he noted, "and Tenet's volumes decline."

But even as its business continues to fall off, Young said, Tenet's expenses keep on rising. Notably, he said, the company found itself collecting less revenue but paying more for salaries during the latest quarter.

To be fair, Tenet did try to offer some reassurance on that front.

"Our same-hospital admissions relative to last year's third quarter, excluding the six hospitals impacted by Hurricane Katrina, declined by 1.4%," Reynold Jennings, Tenet's operating chief, acknowledged in the company's earnings release. But "as part of our strategy to address this decline in volume, we are implementing aggressive new cost efficiency measures which should be substantially implemented by the end of this year."

Questioned Monday about rumors of massive layoffs already underway in southern California, Tenet told

TheStreet.com

that "hospitals continue to right-size staffing to their own volume trends, as appropriate."

Still, Tenet may nevertheless keep on struggling to keep its labor expenses under control. In its latest quarterly filing, the company itself confesses that it has experienced "significant salary, wage and benefit pressures created by the nursing shortage" -- and that it expects that trend to continue going forward.

In the meantime, Young noted, Tenet must also grapple with the "continuing saga" of bad debt from the uninsured.

Some experts question whether Tenet can really overcome all of these challenges. They estimate that the company is now bleeding about $10 million worth of cash per month -- and note that its cash balance dropped by more than $100 million to $1.48 billion in the latest quarter alone. Meanwhile, they add, the company's staggering debt load remains at $4.8 billion.

Thus, they foresee more asset sales on the way. After losing perhaps three hospitals to Katrina -- and selling up to 15 more that are currently bleeding -- they see a company left with just 50 hospitals or so. That's less than half the number the company boasted before it was engulfed in scandal three years ago.