Tenet Tackles Florida Case

It settles, but a class action suit remains unresolved.
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Hospital investors are enjoying some welcome pain relief.

Shares of

Tenet

(THC) - Get Report

jumped more than 5% on Tuesday after the scandal-plagued company settled a government lawsuit in Florida. Meanwhile, shares of

Triad

(TRI) - Get Report

rose nearly as much after the company's fourth-quarter results exceeded the dismal forecast it offered earlier this year.

Tenet said that it will pay $7 million to resolve all matters currently being litigated by the Florida attorney general's office. Florida's top prosecutor has previously accused Tenet of overcharging government health insurance programs and shortchanging non-Tenet hospitals in the process.

Peter Urbanowicz, a former government healthcare attorney who now serves as Tenet's legal counsel, applauded the settlement as a "fair and reasonable" deal. Specifically, Tenet will pay $4 million to establish a fund for indigent patients in Florida and $3 million to assist with Medicaid fraud control in the state.

The company still faces a class action lawsuit over its billing, however. CRT analyst Sheryl Skolnick portrayed that case as the potentially more expensive one.

Meanwhile, Tenet continues to stir up disturbing headlines in Louisiana. Over the past week, both National Public Radio and

The New Orleans Times-Picayune

have featured troubling updates about possible mercy killings carried out at a Tenet-owned hospital in the aftermath of Hurricane Katrina. The company has portrayed its staffers at that hospital as heroes, while pledging to cooperate with state officials who are investigating the matter.

Tenet remains under scrutiny by federal prosecutors as well.

With so many outstanding issues, Tenet struggled to hold on to its early-morning gains. The stock was up just 1.5% to $7.93 as Tuesday's session wore on.

Beating the Street

Triad fared much the same, with its stock up just 1.6% to $42.84 by late morning, even after the company beat its own forecasts.

Triad saw fourth-quarter revenue jump 17% to $1.27 billion -- matching the consensus estimate -- despite a slight drop in some-hospital admissions. Net income rose 11% to $54.6 million, while earnings per share of 68 cents came in 2 cents ahead of Wall Street expectations.

The company also issued 2006 guidance of $3.04 to $3.16 a share. Analysts, on average, are currently looking for 2006 profits of $3.07.

Oppenheimer analyst Glen Losev reiterated his buy recommendation on Triad's stock following the company's report. Losev acknowledged that Triad's bad-debt ratio -- which, counting self-pay discounts, jumped to 12.8% of revenue last quarter -- came in higher than some had originally predicted. He portrayed the company's volumes as "soft," though expectedly so, as well.

But Losev also spotted areas of strength. Specifically, he noted, the company saw revenue per adjusted admission surge by 7.6% in the latest period. He called that increase "very solid," driven perhaps by a rise in lucrative surgery cases. The company itself said that inpatient surgeries increased by 2.1% despite the overall slide in volumes.

For now, however, the company expects rising expenses -- particularly for bad debts and new technology -- to keep it from achieving its traditional midteen profit growth. It is now looking for a return to that growth rate after 2007 instead.

'Mercy Killings'

Meanwhile, Tenet is dealing with an investigation in New Orleans.

Louisiana's attorney general has been investigating allegations of mercy killings of patients at New Orleans hospitals, including Tenet's Memorial Medical Center, in the days after Hurricane Katrina. NPR reported last week that eyewitnesses suggested patients may have died after being given lethal doses of painkillers.

"A careful review of the court document shows that four eyewitnesses on the seventh floor believe that Memorial Hospital staff were preparing to euthanize patients," NPR reported late last week. "According to the documents, these witnesses said they heard hospital staff talk about the decision to end patients' lives and were told that lethal doses of painkillers would be administered."

For its part, Tenet has previously indicated that a tenant -- LifeCare Management Services -- actually cared for most of the patients who died. But the

New Orleans Times-Picayune

reported on Saturday that Louisiana Attorney General Charles Foti has been focusing his attention elsewhere.

"Neither LifeCare nor any LifeCare employee is the subject or target of any criminal investigation at this time," LifeCare CEO Earl Reed said in a recent statement to employees quoted in the

Times-Picayune

. "Nor has LifeCare been the recipient of any subpoenas in connection with the investigation. Rather, LifeCare has fully cooperated with the attorney general's investigation."

Meanwhile, Tenet has suggested that Memorial staffers contact lawyers before answering any questions, according to an internal memo cited by various media outlets. Since then, the

Times-Picayune

reports, Memorial workers have gone on to hire "some of the region's best-known defense lawyers" to handle their cases.

"They are all heroes," one of those attorneys told the

Times-Picayune

last week. "And they did nothing wrong."