UPDATE 3-Tenet sees benefit in 2014 from health reform

Tue Feb 26, 2013 2:03pm EST

* Expects to treat more patients with insurance under reform

* Says signed first contracts for insurance to be sold on exchanges

* Q4 profit 45 cts/shr vs loss 70 cts/shr year ago

* Reiterates 2013 EBITDA outlook; says budget cuts factored in

* Shares up less that 1 percent

By Susan Kelly

Feb 26 (Reuters) - Tenet Healthcare Corp said on Tuesday it expects the U.S. healthcare reform law to have a positive impact on its earnings in 2014 as uninsured patients start to obtain coverage through the new health insurance exchanges.

Tenet, the No. 3 for-profit U.S. hospital chain, also reported a fourth-quarter profit versus a year-ago loss as outpatient visits to its hospitals increased.

The Dallas-based company said it has traditionally treated more uninsured patients than other publicly traded hospital chains due to the markets it is in, including Texas, where a quarter of the state's population is uninsured.

This burden is expected to diminish as those patients obtain insurance through the exchanges, beginning in 2014.

"Everything about health reform should help alleviate some of the pressures on us," Tenet Chief Executive Trevor Fetter said in a telephone interview.

Tenet anticipates a positive impact on its earnings even if states such as Texas do not participate in a planned expansion of the Medicaid program for the poor.

"We see a lot of upside in our markets," Fetter said on a conference call. The company expects to have more details on how health reform will affect its business in the next few months, he added.

An estimated 26 million people are expected to obtain coverage through the health insurance exchanges being set up under the U.S. Patient Protection and Affordable Care Act. But some Republican-led states have rejected both the exchanges and the Medicaid expansion.

Tenet recently signed its first contracts with three Blue Cross and Blue Shield plans for health insurance to be sold to individuals through the exchanges, covering about 30 percent of its hospitals, Fetter said. The plans have a structure similar to its commercial contracts, but with a modest pricing discount of less than 10 percent from current rates, he said.

"Where we have accepted any discount at all, it is for additional market share," Fetter said.

Tenet posted fourth-quarter earnings of $49 million, or 45 cents a share, compared with a loss of $76 million, or 70 cents a share, a year earlier, when the company took a large charge for the early retirement of debt.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increased 16.7 percent to $336 million. Net operating revenue rose 7.3 percent to $2.33 billion.

Tenet reiterated its outlook for 2013 EBITDA of $1.325 billion to $1.425 billion.

The outlook includes an expected reduction to Tenet's revenue and earnings of $45 million this year if automatic U.S. budget cuts, known as sequestration, go into effect.

"We have expected for a long time that it would happen and have planned for that," Fetter said.

In the fourth quarter, Tenet said adjusted patient admissions, which include both inpatient and outpatient volumes, rose 2.9 percent, with outpatient visits up 7.3 percent and outpatient surgeries climbing 13.9 percent. Total admissions were flat, while emergency room visits increased 8.6 percent.

"All things considered, it was a decent quarter," said Jefferies & Co analyst Brian Tanquilut.

Uninsured and charity admissions rose 1.1 percent. Bad debt expenses as a percentage of revenue was 7.9 percent, up from 7.7 percent from a year ago, as more uninsured patients sought treatment, Tenet said.

Tenet, which last week announced plans to acquire Emanuel Medical Center in Turlock, California, is gaining a greater appetite for hospital acquisitions, after focusing on acquiring physician practices and outpatient centers in recent years, company executives said on a conference call with industry analysts.

Tenet shares were up 0.5 percent to $37.82 in Tuesday afternoon trading on the New York Stock Exchange.

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