Tenet Declines on Concern About Inability to Overcome Health-Care Cuts

Tenet Healthcare Corp. (THC) the third- largest U.S. hospital operator, fell the most in a month on investor concern that the company will be hurt by reduced government health-care spending.

Tenet declined 5.4 percent to $4.69 at the close in New York, the biggest single-day drop since Dec. 2. Shares of the Dallas-based company decreased 3.3 percent yesterday after Citigroup Inc. (C) reduced its rating to “sell.”

Tenet was one of at least eight hospital companies and health-service providers downgraded by Citigroup as federal and state governments face tight budgets and begin a cycle of cuts. Tenet is one of the “worst-positioned” to negotiate payment rates, because it has on average only about 7 percent of the share in its primary markets, the Citigroup report said.

The downgrade yesterday has “weighed on investor psychology,” said Whit Mayo, an analyst with Robert W. Baird & Co. in Nashville with a “neutral” rating on Tenet. “We’re in a period right now of the most hypersensitivity I have ever seen for investors in this space.”

Hospital stocks are falling, with the Bloomberg Industries hospital index (BRUSHOSV) down 3.1 percent today. Vanguard Health Systems Inc. fell 7.6 percent, while HCA Holdings Inc. fell 3.9 percent. Both are based in Nashville, Tennessee.

“We have a new year, and people are starting to see things with fresh eyes,” said Dave Shove, an analyst with Bank of Montreal in New York.

Health-Care Overhaul

The overhaul President Barack Obama signed in 2010 will trim $157 billion in U.S. payments to hospitals through 2019, according to estimates by the Congressional Budget Office. The hospital industry agreed to the cuts, figuring the loss would be offset by about 32 million potential patients who are expected to gain insurance coverage after 2014.

Medical providers, though, didn’t count on further reductions as Congress tackled the growing national debt this year. In 2013, Medicare payments will be trimmed 2 percent. Initiatives in Medicare, the U.S. health program for the poor and disabled, to reduce medical errors and preventable readmissions also threaten payments if hospitals can’t improve service.

Rick Black, a spokesman for Tenet, didn’t respond to a call for comment.

To contact the reporter on this story: Sarah Frier in New York at sfrier1@bloomberg.net

To contact the editor responsible for this story: Bruce Rule at brule1@bloomberg.net

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