Hospital chain Tenet Healthcare Corp. posted a loss in its first quarter largely because of a sharp drop in Medicare payments.
Tenet President Trevor Fetter also said the Santa Barbara-based company would lay off about 300 employees at corporate and regional offices as it consolidates or sells 14 of its 114 hospitals. Fetter added that more cost-cutting steps would be announced this summer.
The federal government last year launched a probe of Tenet because it received an unusually large share of Medicare "outlier" payments for expensive cases. On Jan. 1 the company voluntarily changed its billing policy in anticipation of an overhaul by Medicare of its outlier payments.
As a result, Tenet's outlier revenue fell to $18 million in the first quarter, from $197 million in the year-ago quarter.
"We said ... this would be a transitional year and that we would make a number of changes to our business, our management and our governance," Tenet Chief Executive Jeffrey Barbakow said. "Some of these actions have and will continue to impact our near-term financial performance."
In the first quarter, Tenet posted a loss of $20 million, or 4 cents a share, contrasted with a profit of $278 million, or 55 cents, a year earlier. Revenue increased 2% in the latest quarter to $3.45 billion, compared with $3.38 billion a year earlier.
Bucking a trend among some of its competitors, Tenet also reported that admissions at hospitals it owned at least a year rose 1.8% in the first quarter.
Excluding various write-downs, the company said its first-quarter profit from continuing operations would have been 34 cents a share, or 2 cents better than the average estimate of analysts surveyed by Thompson First Call.
"Despite the fact that they had a tremendous collapse in outliers, they still had a positive cash flow," said Jeffrey J. Hoffman, an analyst at Buckingham Research Group in New York.
Tenet faces a number of government probes and suits by shareholder groups. Since October, Tenet's shares have plummeted nearly 70% in value.
Among Tenet's challenges is that managed health-care companies have become more aggressive in challenging Tenet's hospital charges, analysts said. "Tenet's cash flow is not robust; it's awful. I don't think it gets much better in the next quarter," said Sheryl Skolnick of Fulcrum Managing Partners in New York. She added that investors should stop considering Tenet's stock undervalued.
On Wednesday, Tenet's shares rose 43 cents to $16.50 on the New York Stock Exchange.