Red Ink Flowing at Tenet

A slew of restructuring and litigation charges sent embattled hospital chain Tenet Healthcare ( THC) to a $195 million loss in the second quarter, and the company foresees more margin compression and revenue pressure in coming quarters.

The company, which Wednesday night said it would pay $54 million to settle allegations its doctors carried out unnecessary heart surgeries, lost $195 million, or 42 cents a share, on revenue of $3.38 billion in the latest period, compared with earnings of $242 million, or 48 cents a share, on revenue of $3.43 billion last year. There were 69 cents in charges in the latest quarter, including items for asset impairment, restructuring and legal costs.

Besides the charges, Tenet has been coping with a steep reduction in the money it receives from Medicare for unusual operations called "outlier procedures," as well as growing costs. "While we continue to face revenue pressures in the near term, as well as rising cost pressures, we are aggressively moving to reduce costs and bring them in line with our current revenue stream," the company said. "We expect to realize the benefits of these actions later this year and in 2004, and in the interim we are experiencing margin compression as expected."

Outlier revenue was $16 million in the second quarter, compared with $223 million a year ago, causing same-facility unit revenue to fall 6.6%. Second-quarter salaries and benefits costs were $1.47 billion, up from $1.46 billion last year.

Tenet's hospital admissions rose 2.5% overall and 3% on a same-facility basis in the second quarter, over a year ago. Outpatient visits declined 1.2% overall and 0.7% on a same-facility basis.

Mostly reflecting optimism over the settlement, Tenet's shares were recently up $1.15, or 9%, to $14.20 on the Instinet premarket session.

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