Tenet profit up; hospital shares rally on election

CHICAGO Wed Nov 7, 2012 12:31pm EST

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CHICAGO (Reuters) - Tenet Healthcare Corp (THC.N) reported higher quarterly earnings on Wednesday as outpatient surgeries at its hospitals rose, and its shares climbed 8.6 percent as President Barack Obama's re-election ensured survival of health reform, buoying the sector.

The healthcare reform law aims to expand insurance coverage to roughly 30 million uninsured Americans beginning in January 2014. Hospitals are expected to see a reduction in bad debt expenses as more patients are able to pay for their care.

"Last night's election results are encouraging for the full implementation of the Affordable Care Act," Tenet Chief Executive Trevor Fetter said on a conference call.

Tenet shares rose about 8 percent in morning trading on the New York Stock Exchange. Shares of rivals HCA Holdings Inc (HCA.N) climbed about 8 percent, and Community Health Systems Inc (CYH.N) rose 6.3 percent.

"Investors are excited about the prospect of hospitals seeing improved profitability in 2014," said Jefferies & Co analyst Brian Tanquilut.

Tenet scaled back its full-year 2012 profit outlook due to a delayed payment from a California Medicaid program, but forecast 2013 profit above analyst expectations.

HEALTH REFORM IMPACT

Presidential challenger Mitt Romney had pledged to dismantle the health reform act, so Obama's victory was a relief to a sector that has been expected to benefit from the extension of medical insurance coverage to more Americans under the law.

Tenet, which operates 49 hospitals and more than 100 outpatient centers, is anticipating an increase in the number of patients covered by insurance in all of its markets, Fetter said. Greater numbers of insured patients should drive earnings growth over several years, he noted.

While more patients will be eligible for Medicare and Medicaid coverage, or be required to purchase private insurance under the health reform law, Tanquilut cautioned that both government programs and commercial insurers will be looking for ways to reduce rising costs, putting pressure on hospitals.

Tenet posted third-quarter earnings of $40 million, or 37 cents a share, up from $6 million, or 5 cents a share, a year earlier.

Earnings before interest, tax, depreciation and amortization increased 40 percent to $269 million, in line with analyst forecasts. Net operating revenue rose 5.8 percent to $2.22 billion, helped by improved terms in contracts with commercial managed care payers, Tenet said.

The company now expects full-year EBITDA, excluding one-time items, of $1.2 billion, due to the delayed payment from a California Medicaid program that will be recognized in 2013. It previously forecast 2012 EBITDA in a range of $1.25 billion to $1.38 billion.

For 2013, it forecast EBITDA in a range of about $1.33 billion to $1.43 billion, slightly above analyst consensus estimates.

In the third quarter, Dallas-based Tenet said patient admissions to its facilities open at least one year rose 1.4 percent, with outpatient surgeries up 6.3 percent and emergency room visits up 4.9 percent.

But bad debt expense as a percentage of revenue rose to 8.5 percent from 8.3 percent a year ago, due to an increase in uninsured and charity patients.

Tenet shares rose 8.3 percent to $27.02 on the New York Stock Exchange. HCA shares rose about 8 percent to $33.41, and Community Health shares were up 6.3 percent at $30.44.

(Reporting by Susan Kelly in Chicago; Editing by Lisa Von Ahn, John Wallace, Theodore d'Afflisio; and Peter Galloway)

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