Analyst Cuts Tenet Earnings Estimate

On the eve of Tenet Healthcare Corp.’s financial presentation on Wall Street, another analyst has slashed his earnings estimate for the hospital company, citing a marked drop-off in payments from health insurers and Medicare and Medi-Cal.

In a report issued Monday, Darren Lehrich of SunTrust Robinson Humphrey cut Tenet’s earnings growth estimate by 17% in the current fiscal year and by 43% the next year. Lehrich revised his estimates for Tenet, the nation’s second-largest for-profit hospital chain, based on the expected elimination of a huge chunk of special Medicare reimbursements and a lower rate of payment increases from managed-care companies.

Tenet, based in Santa Barbara, is being audited by federal inspectors for aggressively raising its retail hospital charges -- a move that led to excessive Medicare reimbursements known as “outlier payments� for unusually costly cases.

Tenet is scheduled to outline a new pricing policy in New York today in an attempt to quell criticism from investors, regulators and consumer groups. The company also is expected to give future earnings guidance in the wake of the Medicare audit and a separate investigation by federal officials into whether two cardiac doctors at a Tenet hospital in Redding allegedly performed unnecessary heart procedures.

In his revised estimate, Lehrich expects Tenet to turn a profit of $2.50 a share in its fiscal year that ends in May 2003, down from his earlier estimate of $3. But for the year after that, he projected that Tenet’s earnings would be $2 a share, down from $3.48 in his previous forecast.

Lehrich also projected that Tenet would lose about $50 million annually in certain payments from Medi-Cal, the state and federally funded program for the poor and disabled. Lehrich said that Tenet’s aggressive hospital price increases -- which the company has acknowledged -- most likely “distorted bad debt levels,� and that may have inflated its payments for providing large amounts of indigent care, which are known as Medicare Disproportionate Share, or DSH, payments. Tenet has denied that its price increases led to inflated DSH payments.

On Monday, Tenet spokesman Harry Anderson said the DSH receipts had not grown significantly in recent years and those payments were the result of having a number of hospitals serving poor, urban areas.

Also Monday, Tenet and Health Net Inc., the big California HMO, announced a new contract that reflects Tenet’s expected shift in pricing strategy.

In recent years Tenet has derived more revenue from health insurers in the form of “stop-loss payments,� which are based on a percentage of hospital retail charges and are typically higher than the usual fixed reimbursements. A Health Net spokesman said Monday that more than half of its payments to Tenet hospitals last year came from stop-loss, compared with the “mid-teens� for other hospitals overall.

In the new contract, which covers 27 Tenet hospitals in Los Angeles and Orange counties, Health Net will not make any stop-loss payments to Tenet for in-patient care. Originally, stop-loss payments were intended to help hospitals deal with unusually complicated cases, such as premature babies.

Neither side would say how much more Health Net agreed to pay Tenet in fixed daily rates under the new contract.

On Monday, Tenet’s stock fell 69 cents to close at $17.76 on the New York Stock Exchange.