For all its talk of healing, the "new" Tenet ( THC) continues to bleed.

Without special aid from Medicare -- which pumped up profits in the past -- Tenet found itself unable to break even in the latest quarter. The nation's second-largest hospital chain reported a first-quarter loss of $20 million, or 4 cents a share, which reversed strong profits of $278 million a year ago. Special charges stemming from goodwill impairments and restructuring efforts caused much of the pain. But the loss of big Medicare "outlier" payments -- lucrative fees for complex medical procedures -- ultimately cost the company its profitability.

After toning down its aggressive Medicare billing practices early this year, Tenet saw its gushing, high-margin outlier payments slow to a trickle in the latest quarter. The special Medicare payments -- once vital to Tenet's health -- plunged 91% from a year ago, to just $18 million.

Profit margins also tumbled, dropping by more than two-thirds from 15.5% to 4.2%. Cash flow fell by a similar amount, sinking from $610 million to $224 million. But overall revenues, helped by an uptick in patient admissions and private health care payments, actually inched up 2.3% to $3.45 billion. And "adjusted" profits of $162 million, or 34 cents a share, managed to top Wall Street expectations by 2 cents.

All things considered, Tenet portrayed the quarter as a strong one weakened by extraordinary events.

"We are encouraged that admissions to our hospitals continue to grow at solid rates, while patient satisfaction remains high," Tenet President Trevor Fetter said. "All of this clearly demonstrates the underlying strength of our hospitals and their continuing sharp focus on meeting patient needs."

Coming Tidal Wave

But Fetter's reassuring comments come at a time when hundreds of patients and their survivors are reportedly preparing to file lawsuits that accuse the company of profiting from dangerous, but medically unnecessary, heart procedures in Redding, Calif. The company already faces roughly 100 lawsuits from similarly unhappy patients in Palm Beach, Fla.

Attorneys have estimated Tenet's potential liability at $1 billion in the Redding area alone. Meanwhile, Lee Peace -- a doctor and shareholder fighting his own legal battle against Tenet -- says the company may be on the hook to Medicare for billions of dollars' worth of outlier payments it should have never collected.

Tenet has scoffed at Peace's claims and even filed suit against the doctor for making them. In the meantime, the company said it is taking aggressive steps -- including roughly $250 million worth of first-quarter charges -- to restore the company.

"These steps are necessary as we work to reposition the company and build a strong foundation for the future," CEO Jeffrey Barbakow said.

Barbakow recently gave up his role as Tenet chairman. However, he remains under fire by critics angry over the huge sums he collected by selling stock when the company was still profiting handsomely from generous outlier payments that have now all but disappeared.

The stock, up 4.7% to $16.83 on Wednesday, still fetches only one-third of the price it commanded before the Redding and Medicare scandals broke last fall.

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