Last Updated May 6, 2010 6:22 AM EDT
Tenet actually saw its net income drop 48 percent to $95 million from $183 million for the prior-year period. But the lion's share of earnings reported for the first quarter of 2009 were attributed to a debt swap; if that were excluded, net income for the first quarter of 2010 would have risen. And by the measure that Tenet prefers to use -- earnings before interest, taxes, depreciation, and amortization, or EBITDA -- it did very well, indeed, in the first quarter. Its adjusted EBITDA rose 7.2 percent to $298 million from $278 million for the previous-year period, beating analysts' expectations. Indeed, one analyst, Thomas Gallucci of Lazard Capital Markets, is increasing his EBITDA estimate for Tenet for 2010 to $1.037 billion from $1 billion because of the company's "solid cost control."
Even Gallucci, however, points out that financial controls can only get Tenet so far. With commercial managed care volume down and bad debt continuing to rise, he points out, future indicators are not very good. "The long-term success of the business remains predicated on driving up admissions," he points out.
Naturally, Tenet President Trevor Fetter was more bullish in his remarks to analysts. While conceding that first-quarter revenues were soft, he said, "our performance was excellent in the other key economic drivers of acuity, pricing and cost control. Our proven ability to control cost has significant positive implications for our longer-term operating leverage."
Whatever that gobbledygook means, there's one point in Fetter's presentation that's worth pondering. Here's how he explains the concept of excellent performance in "acuity":
Strong growth in revenues per unit [of service] continues to make a significant contribution to our earnings momentum. Inpatient revenue per admission ran 160 basis points stronger than the midpoint of our outlook assumption, and the favorable variance was more than 400 basis points on the outpatient side. Our pricing was enhanced by higher acuity, particularly in our commercial business. And given that 80% of our contract volume is negotiated for 2010 and more than 60% for 2011, we are confident this strength will continue to help drive our earnings growth.If you ever doubted that hospitals' and doctors' desire to raise or maintain their earnings is largely responsible for the rapid expansion of health spending, Fetter's comments should lay them to rest. Higher revenue per admission results not only from higher prices, but from providing more services -- which is what "acuity" means. (I defy anyone to prove that Tenet hospitals had sicker patients in 2010 than in 2009.) By maximizing the amount of care provided and forcing insurance companies and patients to pay more for it, Tenet is improving its margin in a down economy.
You can't fault a business for acting like a business. But as long as hospitals are run for profit -- or, in the case of "not-for-profits," to fulfill their "mission" -- the national health tab per person will continue to be twice as high as it is in other advanced countries.
Image supplied courtesy of Cleaner Indoor Air.