Why did Tenet file a transition report covering seven months?

In March 2003 the board approved changing the fiscal year from ending May 31 to ending December 31, effective December 31, 2002. This report covers the seven-month transition period from June 1, 2002 to December 31, 2002.

How much of Tenet's reported profit depends on Medicare outlier payments?

Medicare outlier revenue was $495 million in the seven-month period ended December 31, 2002. The filing presents adjusted figures excluding this revenue, under which operating income would have been $479 million instead of $974 million. The company also states that it changed its outlier calculation method effective January 1, 2003, which substantially reduced these payments.

What is the company's exposure to litigation and government investigations?

Tenet discloses securities class actions, shareholder derivative suits, a federal False Claims Act lawsuit over Medicare pneumonia and related DRG billings, pharmaceutical pricing class actions, and several federal investigations. The company believes the allegations are without merit and says it cannot estimate the likelihood of loss, which could have a material adverse effect on liquidity, financial position and results of operations.

What did the company's balance sheet and cash flows look like at period end?

At December 31, 2002, total assets were $13.78 billion, long-term debt net of current portion was $3.87 billion, and shareholders' equity was $5.72 billion. Net cash provided by operating activities was $1.13 billion for the seven-month period, and the company had $210 million in cash and cash equivalents.

What steps is management taking to improve results?

Management announced a plan to divest or consolidate 14 general hospitals, consolidated its operating divisions from three to two, and launched an operating expense reduction plan it estimates will save about $100 million annually. It also adopted a new pricing approach that de-emphasizes gross charges and repurchased shares, with 8,621,000 shares bought for about $148 million from December 31, 2002 through April 30, 2003.

THC 10-K Filed May 15, 2003

01—Abstract

Summary

Summary of the 10-KT filed May 15, 2003. Cited figures are marked; the original filing is the authoritative source.

Tenet Healthcare Corporation filed this transition report on Form 10-K covering the seven-month period from June 1, 2002 to December 31, 2002, after changing its fiscal year end from May 31 to December 31.

For the seven months ended December 31, 2002, net operating revenues were $8.74 billion^a (up from $7.83 billion in the comparable 2001 period), operating income was $974 million, and net income was $459 million, or $0.93 diluted earnings per share. The results include $396 million of impairment and restructuring charges, a $64 million impairment on Ventas investment securities, and a $4 million loss on early extinguishment of debt. Net cash provided by operating activities was $1.13 billion for the period.

The company operated 114 domestic general hospitals with 27,870 licensed beds in 16 states at December 31, 2002, and announced in March 2003 plans to divest or consolidate 14 general hospitals. The filing highlights a significant change in Medicare outlier revenue. Outlier revenue was $495 million^b in the seven-month period ended December 31, 2002, and the company states that it voluntarily adopted a new outlier calculation method effective January 1, 2003, which reduced monthly inpatient outlier payments from approximately $65 million to approximately $6 million.

The company says that CMS's proposed rule would materially change outlier payments, and it expects its revenue growth rates of recent years will not be sustained. Adjusted to exclude all outlier revenue, operating income for the seven-month period would have been $479 million^c. Legal and regulatory exposure is extensive.

The filing describes securities class actions filed since November 2002, shareholder derivative suits, a U.S. Department of Justice lawsuit under the False Claims Act concerning Medicare billings for four DRGs, pharmaceutical and pricing class actions, and multiple government investigations, including those at Redding Medical Center and Alvarado Hospital. The company states it cannot estimate the likelihood of loss and that outcomes could have a material adverse effect on liquidity, financial position and results of operations.

02—Key points

Key Highlights

Net operating revenues of $8.74 billion and net income of $459 million for the seven months ended December 31, 2002, compared with $7.83 billion and $328 million for the comparable 2001 period (unaudited).
Operating income of $974 million includes $396 million of impairment and restructuring charges, and the period also includes a $64 million impairment on Ventas investment securities.
Medicare outlier revenue was $495 million in the seven-month period, and the new outlier method adopted January 1, 2003 cut monthly inpatient outlier payments from about $65 million to about $6 million.
Diluted earnings per share from continuing operations were $0.93 for the seven-month period, versus $0.65 in the prior-year period, with adjusted diluted EPS excluding certain items of $1.51 versus $1.23.
Plans announced March 18, 2003 to divest or consolidate 14 general hospitals, with proceeds intended for share repurchases and debt repayment.
Operating expense reduction plan expected to save approximately $100 million annually, and the company expects malpractice costs to rise as its insurance coverage is renewed.
Significant litigation and government investigations are pending, including a DOJ False Claims Act suit, securities class actions and Redding Medical Center investigations; the company says a loss cannot be reasonably estimated.

03—Questions

Frequently Asked Questions

Why did Tenet file a transition report covering seven months?
In March 2003 the board approved changing the fiscal year from ending May 31 to ending December 31, effective December 31, 2002. This report covers the seven-month transition period from June 1, 2002 to December 31, 2002.
How much of Tenet's reported profit depends on Medicare outlier payments?
Medicare outlier revenue was $495 million in the seven-month period ended December 31, 2002. The filing presents adjusted figures excluding this revenue, under which operating income would have been $479 million instead of $974 million. The company also states that it changed its outlier calculation method effective January 1, 2003, which substantially reduced these payments.
What is the company's exposure to litigation and government investigations?
Tenet discloses securities class actions, shareholder derivative suits, a federal False Claims Act lawsuit over Medicare pneumonia and related DRG billings, pharmaceutical pricing class actions, and several federal investigations. The company believes the allegations are without merit and says it cannot estimate the likelihood of loss, which could have a material adverse effect on liquidity, financial position and results of operations.
What did the company's balance sheet and cash flows look like at period end?
At December 31, 2002, total assets were $13.78 billion, long-term debt net of current portion was $3.87 billion, and shareholders' equity was $5.72 billion. Net cash provided by operating activities was $1.13 billion for the seven-month period, and the company had $210 million in cash and cash equivalents.
What steps is management taking to improve results?
Management announced a plan to divest or consolidate 14 general hospitals, consolidated its operating divisions from three to two, and launched an operating expense reduction plan it estimates will save about $100 million annually. It also adopted a new pricing approach that de-emphasizes gross charges and repurchased shares, with 8,621,000 shares bought for about $148 million from December 31, 2002 through April 30, 2003.

04—Continue

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