UPDATE: Tenet Healthcare 1Q Profit Falls 16%; Admissions Grow

Tenet Healthcare Corp.'s (THC) first-quarter profit fell 16% on an increased income tax expense, while the hospital operator generated higher revenue on admissions and outpatient growth and posted a wider operating margin.

The company said it continued to benefit from commercial health insurance rate increases, but that Medicare cuts restrained pricing growth.

Dallas-based Tenet boosted its full-year outlook range for adjusted earnings before interest, taxes, depreciation and amortization by $25 million, reflecting early receipt of Medicaid health information-technology incentives and continued confidence in performance, President and Chief Executive Trevor Fetter said. The company also reported a decline in the expense for unpaid patient debt.

"Volume growth was a clear highlight in the quarter," Fetter said. "Growth in both paying admissions and total admissions turned positive in the quarter."

Tenet has spent the past few months publicly fending off a takeover offer from Community Health Systems Inc. (CYH), which Monday increased its all-cash bid for Tenet to $7.25 a share, or some $4.07 billion, from $6 a share.

Tenet has been aggressive in battling its pursuer and last month filed a federal lawsuit that accused Community Health of overbilling Medicare by improperly admitting patients who should have been treated on outpatient status, an allegation Community has denied. The judge in the case has set a scheduling conference for next week, Fetter said on a conference call. Fetter noted that since the board is reviewing Community's revised bid, Tenet executives wouldn't answer questions on the offer or the lawsuit on the call.

The Justice Department, Department of Health and Human Services Office of Inspector General and Texas attorney general's office are investigating Community's emergency-department billing and admissions procedures.

Tenet, meanwhile, reported a first-quarter profit of $79 million, compared with $94 million a year earlier. On a per-share basis, which includes preferred dividends, earnings were 14 cents a share, compared with 17 cents a year earlier. Net operating revenue rose 7.1% to $2.51 billion.

Analysts polled by Thomson Reuters had forecast a per-share profit of 14 cents on $2.48 billion in revenue.

Operating margin widened to 10.3% from 8.6%.

Adjusted same-hospital admissions grew 2.3% as outpatient visits increased 6.1% and admissions climbed 0.6%, marking the second straight quarter with an improving year-over-year inpatient trend, the company said.

Revenue per admission grew 6.5%, indicating strong pricing, while revenue per outpatient visit declined 2.2%. While revenue from managed-care declined nearly 1%, Fetter cited "strong managed-care pricing" as contributing to the quarter. Chief Financial Officers Biggs Porter said negotiated commercial managed-care increase favorably affected inpatient and outpatient pricing.

Income tax expense increased by $48 million, to $51 million.

The expense for patient bad debt declined year over year both in actual dollars and as a percentage of revenue, and revenue attributed to uninsured patients declined in the first quarter, Tenet said.

The company boosted its 2011 adjusted Ebitda outlook by $25 million to a range of $1.175 billion to $1.275 billion, and increased its view for normalized earnings per share from continuing operations by a nickel, to a range of 38 cents to 51 cents.

Jefferies & Co. analyst Arthur Henderson called the quarter solid. Even though Tenet benefited from favorable one-time items, "adjusted results were still very impressive and were supported by good volume growth, good mix (and) pricing and solid expense management," he said, adding that volumes exceeded expectations.

Tenet shares recently were down 5 cents to $6.64; they are down 13% over the past month, as doubts increased over the likelihood of Community succeeding in its hostile bid, and are up almost 5% in the last year.

Community Health shares traded down 3.3% to $29.22, and are down nearly 28% over the past month--hit by the Tenet lawsuit--and down 30% over the past year. Raymond James cuts its rating on Community to market perform from outperform.

-By Dinah Wisenberg Brin, Dow Jones Newswires, 215-982-5582; dinah.brin@dowjones.com

- Drew FitzGerald contributed to this article.

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