(Reuters) - Hospital operator Tenet Healthcare Corp (THC.N) reported lower quarterly earnings, as higher bad debt expense and other costs dragged on profits in a still-weak economy, and its shares slumped more than 2 percent.
Higher salary and other expenses caused four of Tenet’s 50 hospitals to underperform, and the company is taking actions to improve results at those facilities, Tenet Chief Executive Trevor Fetter said on a conference call with analysts.
A mild flu season slowed total admissions, which were essentially flat in the quarter, while both emergency room visits and surgeries climbed. Orthopedic and spinal surgeries, trauma treatment and gastrointestinal disorders all saw volume growth.
Hospitals in the United States have struggled in the weak economy as patients who lost jobs and health insurance put off medical treatments.
The number of patients seeking treatment on an outpatient basis is rising, which lifted Tenet’s adjusted admissions figure by 2.8 percent in the quarter.
“The outpatient business continues to do quite well, because people don’t want to take time off from work in the weak economy,” said Jefferies analyst Art Henderson.
Hospitals across the sector have reported relatively stable patient volumes, with the U.S. economic recovery still attempting to find its footing, Henderson said. “This quarter is not much different from what we’ve seen over the past few quarters,” he noted.
Dallas-based Tenet, which released preliminary first-quarter results in late April, said on Tuesday net income in the period was $58 million, or 13 cents a share, compared with $73 million, or 14 cents a share, a year ago.
Per-share earnings from continuing operations of 13 cents a share exceeded the average analyst forecast for 8 cents a share according to Thomson Reuters I/B/E/S.
Adjusted earnings before interest, tax, depreciation and amortization were $314 million in the quarter. The company said the four underperforming hospitals in its system accounted for a $15 million shortfall in adjusted EBITDA compared with what it had been expecting.
Net operating revenue rose 2.2 percent to $2.35 billion.
Total admissions slipped 0.1 percent, but emergency room visits increased 5.2 percent, and surgeries were up 6.6 percent. Expense for bad debt, or bills not expected to be paid, rose 6.0 percent to $193 million. The company said supply costs were well controlled.
“While bad debt expense remains elevated as you would expect in the soft economic environment, it remains stable and within our anticipated range,” Fetter said.
Tenet maintained its 2012 outlook for adjusted EBITDA in the range of $1.25 billion to $1.375 billion, which it had raised in April. The company said it anticipates a payment from the state of California and one for a national healthcare information technology initiative to boost profit in the fourth quarter.
Shares of Tenet fell 14 cents, or 2.78 percent, to $4.90 in morning trading on the New York Stock Exchange. The stock is trading at four-month lows.
Henderson said investors are hesitant on Tenet because its outlook is tied to receipt of payments not expected to be received until the end of the year.
Uncertainty over what aspects of President Obama’s healthcare reform program may survive a U.S. Supreme Court ruling on the law in June is also casting a pall over the hospital sector, Henderson said.
“That’s really going to be a nail-biter for investors in the space. That’s a game-changer if that law is overturned,” he said.
Reporting by Susan Kelly, editing by Dave Zimmerman and M.D. Golan