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Tenet Results Suggest Hospitals Are Still Strong

On the heels of HCA's good news about its first-quarter results, Tenet Healthcare, the second largest for-profit hospital chain, reported that it earned $178 million in the first three months of 2009, compared with a loss of $31 million for the prior-year period. The majority of the gain, $134 million, was attributable to a debt swap in January; the company exchanged $1.6 billion of notes due in 2011 and 2012 for new debt payable in 2014 and 2015. But that still left an increase of $75 million from operations and other sources.

Tenet's first-quarter revenue rose 4.6 percent to $2.28 billion. Although its same-facility admissions were down 1.3 percent, outpatient visits increased slightly, and paying outpatient visits advanced 2.3 percent. Total same-facility surgeries were up 2.6 percent, and outpatient surgeries increased 4.7 percent. So, while Tenet CEO Trevor Fetter attributed much of the company's strong results to improved cost controls, a shift toward more outpatient business and a rise in the number of procedures also contributed.

Both commercial managed care admissions and outpatient visits dropped, apparently reflecting the rising unemployment that has cost many workers their health insurance. Nevertheless, commercial managed care revenues rose 4.5 percent, mainly because of price increases. Similarly, net patient revenue per admission grew 3.6 percent, and net outpatient revenue per visit jumped 5.2 percent. "Pricing improvement was evident across all key metrics, primarily reflecting the improved terms of our commercial managed care contracts," the company said.

Big chains like Tenet and HCA are not the only healthcare providers that have market clout. In fact, hospital consolidation into larger systems was a major reason for the rapid increase in health spending a few years ago. If the for-profit chains can still extract pay hikes from health plans in the teeth of the recession, there's no reason why not-for-profit health systems can't do the same--and, in fact, they probably are.

All of which makes me wonder about the AHA's continuing assertions that the hospital industry is in terrible shape. In April, the AHA said that 70 percent of hospitals were reporting "a decline in overall financial health which will impact their ability to care for their communities." Forty-three percent of hospitals expected losses in the first quarter, compared with 26 percent during the same period in 2008. Meanwhile, AHA said most hospitals had made cutbacks to address economic concerns, and nearly half had reduced their staffs.

There's no doubt that most hospitals are taking steps to control costs. But the HCA and Tenet results suggest that the majority of facilities are still doing pretty well compared to other businesses.

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