Tenet Healthcare yesterday reported a net income of $49 million or $0.45 per share for the fourth quarter of 2012, compared with a loss of $76 million, in the fourth quarter last year. The company attributed its positive results to both increased inpatient and outpatient visits.
"These results, both for the fourth quarter and the full year are the best we've had in 10 years," said Trevor Fetter, president and CEO of Tenet in a Tuesday conference call. "Our performance was led by strong top line growth with solid pricing and significant growth in outpatient and surgical volume. This marks another quarter in which our volumes were among the strongest in the industry."
Fetter is also bullish on the future for the country's third-largest for-profit hospital system as a result of the implementation of the Affordable Care Act, which will result in a lower number of uninsured patients for the operator as a result of Medicaid expansion and the individual mandate.
"We see a lot of upside in our markets," Fetter added.
In addition, the company also announced that it had it had signed contracts with three large Blue plans for insurance products that will be sold on the new state health insurance exchanges. These plans will cover 15 Tenet hospitals or about 30 percent of the providers total facilities.
"These contracts are all managed like commercial contracts, not like managed government contracts. Our position is that the exchanges are a different distribution channel for insurers to sell commercial product to the individual market," Fetter said. "We don't' see them as distribution channels for selling managed Medicare or Medicaid product, since those markets are very different."
The new contracts for the HIX products were signed with discounts of less than 10 percent compared with existing commercial contracts Tenet already has in place with the three Blue plans.
"Where we have accepted any discount at all, it is for additional market share," he added.
Of the three contracts one is for a narrow network product and the other two provide for tiered benefits plans.
But Jason Gurda an investment analyst with New York-based Leerink Swan thinks the pricing strategy of Tenet may be fraught with risk.
"In our view, the bad news about offering discounts on the exchanges is that we believe it will be very difficult for hospital operators to get their historical commercial rate increases (5-6 percent for example) on these contracts in the future due to increased competition between plans on the exchanges (so the discount between exchange & traditional contracts will increase over time)," Gurda wrote in a note to investors, "and we believe that over time more and more people will shift to the exchanges to get health insurance."
That said, Gurda also noted that in the next few years, he sees the pace of change in the exhcnage market will be slow. Further, Tenet's exposure in the exchange market will be a relatively small portion of the company's payer mix for the foreseeable future.
Based on its fourth quarter performance Tenet reaffirmed it's 2013 guidance, noting that earnings before interest, taxes, depreciation and amortization (EBITDA) would fall in the $1.325 billion to $1.425 billion range.
[See also: Tenet provides 2012 earnings outlook]