MIAMI, June 14 /PRNewswire/ - Financial reports filed by Tenet Healthcare Corp. with the state of Florida on May 31 show that the 15 company hospitals in Florida suffered a combined pre tax loss of $378 million in 2004.
For calendar 2004, Tenet's 15 Florida facilities had a combined negative EBITDA of $15.3 million. For the fiscal year ended May 31, 2003, the same 15 hospitals had a positive EBITDA of $269.4 million. (EBITDA is Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA is used as a measure of a company's operating cash flow.)
Nine of the company's 15 hospitals had a negative EBITDA; only 6 of them had positive EBITDA last year.
The company also recorded asset impairment charges totaling $312.1 million, or about $0.67 per share, from just one state in one year!
The pre tax loss of $378 million in 2004 compares with a profit in fiscal year 2003 of $233 million. This is a negative variance of over $600 million.
"It is time for triage, not more denial and continued wishful thinking," Dr. M. Lee Pearce, chairman of the Tenet Shareholder Committee, said. "Negative EBITDA at 9 of the 15 hospitals is draining scarce resources that this hard-pressed company cannot afford to lose."
Pearce offered a four-point prescription for restoring quality and profit in the Florida region:
1. Fire the regional vice president immediately.
2. Sell off the worst performing hospitals, especially those which are now irreparably damaged under Tenet's aegis and control.
3. Use those proceeds to increase capital expenditures on the remaining hospitals that might be fixed.
4. Demonstrate a real commitment to quality by deeds, not words.
"Until recently, Florida was considered the 'Crown Jewel' of the Tenet system. But Tenet hospitals in Florida have been tarnished by charges of patient abuse, multi-million dollar settlements to resolve government investigations, a record $22 million fine at one hospital, and millions more spent to settle patient lawsuits. And while Tenet was attempting to buy its way out of fraud and abuse charges, its competitors were investing heavily in new equipment and improved facilities," Pearce said. "The civil racketeering charges filed by Florida's Attorney General and the amicus brief filed by the U.S. Department of Justice in support of Florida's position in that case indicate that Tenet's problems in Florida are far from over," Pearce added.
Company officials have already admitted that in the first quarter of 2005, patient volumes were down in Dade and Broward Counties and flat in Palm Beach County. (Tenet's Chief Operating Officer, Reynold Jennings, Transcript of last month's Earnings Conference Call, May 3, 2005.)
Jeff Villwock, a healthcare industry analyst and TSC advisor, said, "In South Florida, the first quarter is usually the strongest quarter in the highly seasonal Florida market. If Tenet did poorly in the first quarter, imagine how much worse operations are likely to be in the present quarter and over the summer months."
According to calendar year 2004 reports filed with the state:
In Miami-Dade County, Tenet's Parkway Regional Medical Center lost $13.5 million in EBITDA, Hialeah Hospital lost $4.5 million, and Coral Gables Hospital lost $5.5 million.
In Broward County, Tenet's North Ridge Medical Center lost $8 million, Florida Medical Center lost $7.1 million, and Hollywood Medical Center lost $295,000.
In Palm Beach County, Tenet's St. Mary's Medical Center lost $20.7 million, Palm Beach Gardens Medical Center lost $5.3 million, and Good Samaritan Medical Center lost $5.8 million.
According to Villwock, "The financial reports required by the State of Florida provide a detailed look at individual Tenet hospital operations, something not provided in financial reports filed with the Securities and Exchange Commission (SEC)."
"A careful examination of the Florida report provides useful insights on the problems at Tenet hospitals in Florida and the failings of Tenet management," Villwock said. "Based on our review, we found the following data, which we consolidated for all 15 hospitals:
* Inpatient days increased a mere 0.4%.
* Medical/Surgical admissions declined 0.6%.
* Gross revenue declined 1.6%, which is slightly worse than admissions, indicating some slight decline in gross revenue per admission.
* Net revenue, however, declined 10.4%. A 10.4% decrease in net revenue on a slight decrease in admissions indicates to us that the payor mix has substantially deteriorated with higher amounts of indigent patients, more Medicaid, lower paying HMO business, fewer full-pay patients, and higher emergency room admissions leading to poor payors.
* Net revenue per inpatient day decreased 10.8%.
* Ambulatory surgery minutes declined 16.2%. Ambulatory surgery is one of the most profitable departments in a hospital.
* Open-heart surgery cases declined 13.3%.
* Cardiac cath procedures declined 5.2%.
* Total labor costs increased 6.5%.
* Labor costs as a percent of net revenue increased substantially from 30.9% to 36.7%. Despite this increase, we believe that Tenet's spending on patient care cannot be further cut without having a negative impact on quality and patient satisfaction and ultimately leading to a further loss of volume.
* Labor costs per inpatient day increased 6.0%.
* Total costs per inpatient day increased 6.2%.
* The combination of a decrease of revenue per patient day of 10.8% and an increase in costs per patient day of 6.2% precipitously dropped EBITDA per patient day from a positive $299 to a negative $9 per day.
* The combination of a 10.8% reduction in revenue and a 6.2% increase in costs produced the extraordinary reduction in EBITDA from a positive $269 million to a negative $15.3 million."
Villwock continued, "These statistics lead us to make the following observations about the future of Tenet's Florida hospitals:
* Cost is not the issue. Tenet's operating costs per patient day of about $1,800/day increased 6.2%. In our view, the company cannot afford to cut more costs. Labor costs were up 6%. The issue is that there is a minimum amount of staffing needed to operate these 15 hospitals properly. In our opinion, Tenet cannot further improve operations in Florida by significant cost- cutting, which is what senior management keeps talking about in their public statements.
* Volume and patient mix is the problem. A 10.8% decline in revenue per patient day is a disaster. Given that patient days actually increased, the issue is getting the right patients into the facility.
* Quality patients (defined in the industry as those who have high-paying coverage) are going elsewhere. Ambulatory surgery, heart surgery, cardiac caths -- all down. Attracting quality patients requires attracting quality physicians. Attracting quality physicians requires high levels of capital spending in the facilities to provide the working environment that the physicians want. Attracting quality physicians also requires the establishment of a good reputation for these facilities. Tenet simply is not investing, and probably cannot invest appropriately in its facilities.
* Tenet is capital restrained at exactly the wrong time. Investors have almost blindly accepted management's explanation that the investigations are driving away patients -- and, to some extent, that certainly is the case. But even if the investigation was resolved tomorrow, to get the doctors back will require massive capital infusions as well as the establishment of a good reputation.
* For Tenet just to tread water and continue to lose $9/patient day, we believe it must generate in 2005 an increase in revenue in the range of 6%. There is no reason to expect that costs will rise less than 6% in 2005 per patient day. Unless Tenet can raise revenue per patient day and/or increase admissions to achieve the 6% revenue increase, the loss will widen, not shrink. This is simple Economics 101.
* Tenet has already admitted that Florida produced poor results in the March 2005 quarter. In our opinion, there is little if any chance that Tenet can produce a 6% revenue gain in Florida in 2005. If this is correct, then Tenet's losses in 2005 will increase from 2004 levels."
TSC Chairman Pearce concluded, "Based on our earlier findings published on our Web site and this most recent review, we believe restoring the company's health in Florida will take new leadership at the regional level and quick action to stop these losses. In our view, 15 is not a magic number. We believe it is far better to sell the hospitals that cannot be fixed by Tenet, and concentrate on those that can be fixed. We do not believe Tenet has any other realistic choice. The only question now is how long senior management will let the company continue to bleed before they come to grips with reality."
Note: The TSC analysis is based on the financial reports for individual hospitals filed by Tenet with the State of Florida (Agency for Health Care Administration) as of 5/31/05 for calendar year 2004, but not yet audited by the state. It does not seem likely to us that any changes requested by the state will improve these dismal results. For background on the Tenet Shareholder Committee, visit the Committee's web site: http://www.tenetshareholdercommittee.org
FROM: Myers, Myers & Adams Public Relations 938 Victoria Park Road, Fort Lauderdale, FL 33304 CONTACT: Peter Myers, 954-523-6262, email pete@mmanda.com FOR: Tenet Shareholder Committee, LLC
Tenet Shareholder Committee, LLCCONTACT: Peter Myers of Myers, Myers & Adams Public Relations,+1-954-523-6262, or pete@mmanda.com, for Tenet Shareholder Committee, LLC