With ongoing and incremental cost efficiencies, on Monday, Tenet Healthcare Corporation (THC) raised its 2010 guidance for adjusted EBITDA to a range of $1.035 billion to $1.100 billion, from the prior range of $0.985 billion to $1.050 billion. The outlook also projects a revised range for net income attributable to Tenet shareholders of $135 million to $204 million, up from $70 million to $94 million. The revised range for earnings per share of 27−40 cents per share was up from 14−19 cents per share.
Tenet further expects increased earnings of 34−41 cents per share, up from a previous forecast of 24−32 cents per share, excluding discontinued operations, litigation and investigation costs.
Management states that the 2010 adjusted EBITDA outlook is now impacted by incremental health care information technology expense of $25 million, which was $40 million in the prior outlook.
Tenet’s revised outlook for 2010 is attributable to lowered controllable operating expenses by $50 million, resulting from the better labor cost management, reduced clinical information technology expense and improving malpractice costs.
Since June 9, total admissions have increased 80 basis points to a decline of 1.2% as compared with the first quarter 2010 decline of 2.0%. In addition, paying admissions and commercial managed care admissions also improved 80 and 120 basis points, respectively, from declines of 2.2% and 7.2% recorded in the first quarter of 2010. The trend continued with paying admissions and commercial managed care admissions decline by 1.4% and 6.0% in the first 70 days of the second quarter. Tenet expects guidance revision to continue for commercial admissions in 2010.
It is visibly seen that disciplined cost management and improved admissions have driven earnings in the recent periods. However, soft patient volumes and a weak economic environment remains a concern for Tenet. Total outpatient visits of Tenet declined 1.8% in the first quarter of 2010, partially due to the adverse effects of a decline in flu-related volumes and weather-related disruptions.
We believe the volume declines are attributable to factors that have affected many hospital companies, including the impact of the recession on consumer demand, decreases in the demand for invasive cardiac procedures, increased competition and utilization pressure by managed care organizations, as well as benefit plan design changes. Tenet continues to look for measures such as Physician Relationship Program, Targeted Growth Initiative, Commitment to Quality initiative and Medicare Performance Initiative to increase patient volumes.
Moreover, controlling labor costs in a fluctuating patient volumes environment is a tough challenge for Tenet, as inflation and technology improvements drive supply costs higher, and the efforts to control supply costs through product standardization, bulk purchases and improved utilization becomes difficult.
Overall, we strongly believe that volume growth can significantly help in boosting the earnings outlook of Tenet and its labor cost management in future.
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