News Column

Tenet Reports Adjusted EBITDA of $387 Million for the Quarter Ended March 31, 2014

May 19, 2014



By a News Reporter-Staff News Editor at Managed Care Weekly Digest -- Tenet Healthcare Corporation (NYSE:THC) reported Adjusted EBITDA for the first quarter ended March 31, 2014 of $387 million, an increase of $113 million, or 41 percent, as compared to $274 million in the first quarter of 2013. The increase in EBITDA in the first quarter of 2014 was adversely impacted by an aggregate of $76 million related to several items, the largest of which included: (i) a $25 million revenue decline related to Medicare sequestration which was not in effect in the first quarter of 2013, (ii) a $22 million EBITDA decline primarily related to the loss of an uncapped health plan contract in Arizona, and (iii) a $12 million decline in California Provider Fee Program revenue recognition (see also Tenet Healthcare Corporation).

"Aided by our extensive preparations to serve the newly insured patient populations under the Affordable Care Act, we achieved a broadly-based improvement in our admissions trend in the first quarter, with a 0.3 percent increase in adjusted admissions and a 0.9 percent admissions decline on a pro forma basis," said Trevor Fetter, president and chief executive officer. "The strengthening volume trend was particularly pronounced in the states that expanded their Medicaid programs. In these four states our Medicaid admissions grew by 17 percent and uninsured plus charity admissions declined by 33 percent. We leveraged this top line contribution through solid cost control to approach the top quartile of our Adjusted EBITDA Outlook range. Our EBITDA and volume growth would have been even stronger had it not been for the adverse impact of challenging weather events in many of our markets. The quarter's solid results demonstrate the powerful earnings momentum created by Tenet's transformation from a regional operator of hospitals to a national diversified healthcare services company. Based on these achievements and the continued smooth integration of our recent Vanguard acquisition, we are confirming our Outlook range for 2014 Adjusted EBITDA of $1.8 billion to $1.9 billion." Discussion of Results (Percentage changes compare Q1'14 to Q1'13, and, unless otherwise noted, represent pro forma changes defined as including Vanguard's legacy operations in both reporting periods.) Including Vanguard's operations in both reporting periods, first quarter 2014 pro forma adjusted admissions and admissions increased by 0.3 percent and declined 0.9 percent, respectively, compared to the first quarter of 2013. The trend in commercial admissions strengthened in the first quarter of 2014 achieving the best quarterly same-hospital performance in more than six years. Total same-hospital admissions declined 1.2 percent in the quarter and total admissions in the legacy Vanguard markets declined 0.5 percent. Outpatient visits increased by 4.6 percent on a pro forma basis and 2.5 percent on a same-hospital basis. More than 40 percent of pro forma outpatient growth was organic. Surgeries grew by 7.7 percent on a pro forma basis and 13.1 percent on a same-hospital basis. Emergency department visits declined 0.7 percent on a pro forma basis and grew by 2.7 percent on a same-hospital basis.

Tenet achieved an aggregate first quarter increase in pro forma Medicaid admissions of 17 percent, in the four states that expanded Medicaid eligibility effective January 1, 2014 under the Affordable Care Act ("ACA"). Uninsured plus charity admissions declined by an aggregate 33 percent in these same four states. Outpatient payer shifts were comparable in these four states.

Patients identified as insured by exchange products created as part of the Affordable Care Act increased sequentially during the quarter and this growth trend continued in April.

Tenet experienced a decline in Medicare and managed Medicare one-day admission stays, which contributed 26 basis points to the first quarter's aggregate admissions decline on a pro forma basis. A portion of the decline in one-day admissions may be related to the recently implemented Medicare two midnight rule. The impact of severe weather events in certain markets is estimated to have reduced pro forma growth in admissions by 36 basis points and outpatient visits by 160 basis points.

Net operating revenues, after provision for doubtful accounts, were $3.926 billion, an increase of $40 million, or 1.0 percent, compared to pro forma net operating revenues of $3.886 billion in the first quarter of 2013. These revenue increases primarily reflect improved terms in commercial managed care contracts, and growth in our outpatient and Conifer services businesses. These growth drivers were partially offset by an approximate $75 million decline in health plan revenue due to a different contract with the state of Arizona Medicaid program that has fewer covered lives, and the absence of revenue recognition from the California Provider Fee program in the first quarter of 2014 compared to $12 million in the first quarter of 2013. Commercial managed care revenue increased 5.5 percent per admission and increased 0.2 percent per outpatient visit on a pro forma basis. The impact of Medicare sequestration payment cuts reduced Adjusted EBITDA by $25 million in the first quarter of 2014. The sequestration cuts were not in effect in the first quarter of 2013. Net patient revenue per adjusted admission was $11,692, a pro forma increase of 2.1 percent.

Selected operating expenses for hospital operations, defined as the sum of salaries, wages and benefits, supplies and other operating expenses, increased by 1.5 percent per adjusted admission on a pro forma basis. This selected operating expenses metric for hospital operations excludes the Company's Conifer services business, health plans, and a provider network in Southern California. Excluding incremental expenses related to increased physician employment, the same-hospital increase in selected operating expenses per adjusted admission was 2.6 percent. The operating expense increases reflect volume growth in our supply-intensive service lines, especially surgical volume, as well as increases in employee compensation. The growth in supply-intensive service lines contributed to a 0.7 percent pro forma increase in the case mix index and a 7.7 percent increase in pro forma surgeries. Electronic health records incentives recorded in the first quarter of 2014 were $9 million, a $4 million increase compared to $5 million recognized on a pro forma basis in the first quarter of 2013. These incentive payments are not included in the definition of selected operating expenses.

Bad debt expense increased by $21 million, or 5.8 percent, to $380 million in the first quarter of 2014 compared to last year's pro forma first quarter. The increase in bad debt expense was primarily attributable to a temporary increase in the aging of receivables due to payment timing issues with certain payers and a $5 million same-hospital increase in uninsured revenues. Bad debt expense as a percent of revenues before bad debts was 8.8 percent, a pro forma increase of 30 basis points compared to 8.5 percent in the first quarter of 2013. The same-hospital self-pay collection rate was 28.1 percent in the first quarter of 2014, a 70 basis point decline compared to 28.8 percent in the first quarter of 2013. The same-hospital commercial managed care collection rate was 98.4 percent in the first quarter of 2014, a 30 basis point increase compared to 98.1 percent in the first quarter of 2013.

Conifer reported Adjusted EBITDA of $48 million, an increase of $16 million, or 50 percent, compared to $32 million in the first quarter of 2013. Conifer's revenues were $285 million in the first quarter of 2014, an increase of $74 million, or 35.1 percent, compared to $211 million in the first quarter of 2013. Conifer's first quarter 2014 EBITDA included $5 million of earnings from transactions that will not routinely occur on a quarterly basis.

Income from continuing operations in the first quarter of 2014, excluding $15 million in after-tax impairments, restructuring charges, acquisition-related costs, litigation and investigation costs and loss on debt extinguishment, was a loss of $12 million after-tax, or $0.12 per diluted share. The comparable after-tax exclusions were $120 million in the first quarter of 2013, which resulted in income from continuing operations of $34 million, or $0.33 per diluted share.

Net loss attributable to common shareholders in the first quarter of 2014 was $32 million after-tax, or $0.33 per share, compared to a net loss of $88 million after-tax, or $0.85 per diluted share, in the first quarter of 2013. The first quarter of 2014 included a $79 million increase in pre-tax interest expense compared to the first quarter of 2013. This increased interest expense is substantially due to the $4.6 billion of financing related to the Vanguard acquisition and $400 million to finance share repurchases during 2013.

Cash and cash equivalents were $141 million at March 31, 2014 compared to $113 million at December 31, 2013. Approximately $210 million of net revenues related to the California Provider Fee program, Texas Medicaid disproportionate share reimbursement, and the Texas uncompensated care 1115 Waiver program had not been received by the Company as of March 31, 2014. Accounts receivable days outstanding were 49 days at March 31, 2014 compared to 47 days at December 31, 2013. Outlook for Second Quarter and 2014 Adjusted EBITDA The Company's Outlook range for Adjusted EBITDA for the second quarter of 2014 is $375 million to $425 million and earnings per share in a range of a loss of $0.39 per share to income of $0.12 per share. No revenue recognition related to the California Provider Fee Program is assumed in this Outlook. Incentive payments related to electronic health records are assumed to contribute $50 million to the second quarter Outlook.

Keywords for this news article include: Hospital, Medicaid, Medicare, Legal Issues, Managed Care, Health Policy, Affordable Care Act, Tenet Healthcare Corporation.

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Source: Managed Care Weekly Digest


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