Criticized for its lavish tastes,


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is scaling back a bit.

In an effort to improve margins, which have taken a hit at the hands of a more conservative Medicare billing policy, Tenet plans to shed 14 noncore hospitals and even unload a couple of corporate jets. The company will also begin expensing its generous stock option awards and shift to a calendar year for reporting purposes that is intended to "enhance financial transparency and improve comparability."

The company, which is under investigation for potential Medicare fraud, warned that its restructuring plan will trigger unspecified charges. The latest moves come as Tenet attempts to strengthen its financial performance and restore confidence among investors rattled by last year's revelations of aggressive Medicare billing and potentially unnecessary surgeries in the company's home state of California.

Tenet said it expects its new cutbacks to save $100 million annually -- which can be used for stock repurchases -- without hurting patient care. The company, based in the resort town of Santa Barbara, has been accused by disgruntled shareholders and striking California nurses of placing corporate profits ahead of patient care.

Tenet President Trevor Fetter, who rejoined the company after the scandals erupted last year, assured investors Tuesday that Tenet is headed down the right path.

"As we move through 2003, Tenet's new management team is focused clearly on a defined set of objectives: resolving the specific challenges we face, operating the company with greater efficiency and assuring the success of our core strategy -- to build competitive networks of quality hospitals principally in major markets," Fetter said. "Today's actions are important early steps toward achieving these goals."

Tenet's stock jumped 3.2% to $17.75 on news of the upcoming changes.

Perking Up?

Fulcrum analyst Sheryl Skolnick, who has been somewhat critical of Tenet in recent months, viewed the developments as "very positive." She expects the company's cost-cutting efforts to add 4 cents a share to yearly earnings, more than offsetting the $141 million in earnings before interest, taxes, depreciation and amortization that Tenet will lose by selling 14 hospitals that last year generated nearly $1 billion in revenue.

Skolnick is particularly delighted by Tenet's newly conservative stance on company perks.

Where There's Smoke
Tenet languishes

"They're going to start expensing stock options -- which is good, because they give away a lot," said Skolnick, who has no position in the stock. "They're also selling two of their three corporate jets. That sort of sings my tune."

In the past, Tenet has diluted annual earnings by 10% through a generous stock option program available to 900 executives and managers. By expensing the options this year, Tenet expects to see earnings cut by 18 cents a share.

But the company could offset this EPS loss through its stepped-up stock repurchases. Skolnick expects Tenet to clear up to $1 billion on asset sales that could be used to buy back stock.

Christmas in July

In announcing its restructuring plans, Tenet said it will sell hospitals in eight different states. The company will exit the Arkansas and Missouri markets entirely, while focusing more closely on growing urban markets in the likes of Florida and California. Following the sales, Tenet will be left with 100 hospitals in 15 states.

"Our focus in the future must clearly be on generating growth in our core markets," Fetter said.

In the meantime, Tenet plans to save money by cutting staff that's uninvolved with patient care, expanding the use of affordable contract nurses, negotiating cheaper energy contracts and trimming corporate travel budgets -- selling two Gulfstream jets in the process.

The company will also shift its fiscal year to coincide with the calendar year. The change will align Tenet's financial calendar with new Medicare billing practices that Tenet adopted Jan. 1. Tenet has already cautioned investors that the change -- which reduces the company's dependence on generous "outlier" reimbursements for high-risk procedures -- will slow the company's growth.

The company is scheduled to issue its next quarterly report April 10.