Tenet Healthcare Executive Insights: Shortfall, Pricing

On Tuesday, Tenet Healthcare Corp (NYSE:THC) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what the C-suite revealed.

Shortfall

Ralph Giacobbe – Credit Suisse: I guess, when we start thinking about the second half of the year aside from the California Provider Fee and HITECH payments, any other things we need to consider that would help because the implied ramp in the underlying business seems pretty steep, so maybe any specifics there you can give, and then maybe along those lines talk about what you can do for those four hospitals that you had discussed earlier that’s causing a shortfall in the quarter?

Trevor Fetter – President and CEO: Sure thing, Ralph. I will – I’m going to draw in a couple of comments from some of my colleagues, Dan Cancelmi, as well as Britt Reynolds on the second part of your question. So, there are a number of things that are weighted toward the second half. They’re very helpful, you called out the California Provider Fee, some health IT fees, it’s really a timing difference that’s occurred in the recognition of Health IT, but all of these things are payments that are essentially in lieu of either what would have historically been higher Medicaid rates, or incentives that would have been recognized in earlier periods, so although it creates this ramp toward the second half of 2012, really those payments ought to be recognized into earnings over earlier periods, just you can’t do that under GAAP. In addition, we’ve got initiatives that have created this momentum that we’ve been showing in volumes that are intended to get stronger you as the course of the year unfolds. There are other minor items including some provider fees and other states that you should be kicking in in the second half of the year. We’ve anticipated a lot of this into the fourth quarter and so Dan, did I leave anything out that is worthy of mention that’s part of that ramp-up?

A Closer Look: Tenet Healthcare Earnings Cheat Sheet>>

Daniel J. Cancelmi – Principal Accounting Officer: I think also looking at our MPI initiatives, we think there are further opportunities there in the second half of the year not only on the salary wages lines but also on the supply expense line item as well. Also, there is some additional pricing opportunities in the second half of the year as well as we’re looking at hopefully get some bad debt improvement also in the second half of the year.

Ralph Giacobbe – Credit Suisse: Just to follow – I’m sorry – get going.

Trevor Fetter – President and CEO: I was just going to add then there is this other very material thing which is getting the four hospitals I mentioned back on track. So, I hope not to steal the thunder if anybody else who wanted to ask that question. But Britt why don’t you just comment a little bit on what you’ve seen in those hospitals and how achievable it is to get them back on track?

Britt T. Reynolds – President of Hospital Operations: Sure. As Dan alluded to the opportunities that exist in those hospitals to get back where we are accustomed to seeing them perform and where we would project them performing in the balance of the year is really in those areas that Dan alluded to, the TGI initiatives, there are some variation in those hospitals among our others where we could see a return back to performance on those targeted growth initiatives. There are some bad debt opportunities in some. There are expense initiatives such as salary, wages and benefit opportunities, as well as some payer mix and mild acuity issues that Dan had alluded to. There are not any one particular issue that is systemic across the four. As Trevor alluded to earlier, they are in four different regions. So there is nothing with a particular state payor or anything that would cause us concern from a systemic standpoint. It’s more of a focus on those particular four and tell you that we’ve dedicated each of our regional leadership teams in those regions to those hospitals. The reports I’m getting back are improving. The data that I see and the discussions I have with those regional leaders and the hospital leaders are that while we don’t give intra-quarter guidance, I’m very encouraged by the improvements seen on volumes and on some of these initiatives that I spoke about were some of the challenges. We saw that in April and just a week and two in the current month we see that continuing to move along the lines we’d like to see. I think going forward as you asked the question about the outlook, I feel confident that we have the right team in place and the right things under focus to get those where we need them by the end of the year.

Pricing

Kevin Fischbeck – Bank of America Merrill Lynch: Can you talk a little bit more about the pricing, I guess it was worth than what we were looking for. I guess it sounds like mix shift was the big issue there. Can you talk a little bit about what happened there? What was driving there that? It sounds like one of the things that you are talking about as far as potentially improving the four assets was trying to help the payor mix. So, is there anything that you are doing there to try and actively manage that or is that just a function of the economy?

Trevor Fetter – President and CEO: Yeah. So, there was some effect across the portfolio, and I think others in the industry had talked about this as well, as slightly lower acuity was driven more by shifts and service mix than anything else. We listened last week to the earnings call of HCI. I think, our acuity moved identically to their. So nothing unusual, but I think that some of those pricing stats were driven by those changes which were really pretty minor.

Kevin Fischbeck – Bank of America Merrill Lynch: But you mentioned that you had surgery volume across the inpatient and outpatient, can you break out the surgery growth between those two things, and I guess, is it that your Target Growth Initiatives are geared towards some of these lower acuity items or (indiscernible)?

Trevor Fetter – President and CEO: No, actually to the contrary the Targeted Growth Initiatives are geared to things like the orthopedic and spinal surgeries, where they were two of our strongest performing service lines. I think, the couple of key points on the surgery statistics, one was that the growth came from both inpatient and outpatient. So that’s important to see that growth returning in inpatient was something we are very pleased to see. The second important point was that of the total growth in surgeries, 75% of it was organic. We’ve had some quarters going back over the past say four, where the percentage of growth in surgeries that was being driven by acquisitions of surgery centers was higher than that. So, we’re really pleased to see the organic growth as strong as it was.

Kevin Fischbeck – Bank of America Merrill Lynch: So was it really just the OB volume, what grew very quickly that kind of outweighed the progress you’re making on?

Trevor Fetter – President and CEO: Yeah, OB was – OB grew pretty quickly.

Kevin Fischbeck – Bank of America Merrill Lynch: That’s the main one?

Trevor Fetter – President and CEO: That also affected length of stay.

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