Tenet CEO Sees Boost as More States Expand Medicaid Plans

New Jersey’s Chris Christie and Florida’s Rick Scott won’t be the last Republican governors to expand Medicaid under the 2010 health-care law, said Tenet Healthcare Corp. Chief Executive Officer Trevor Fetter.

Eventually, Fetter expects them all to.

Governors are facing increasing pressure to expand the program from hospitals in their states that provide millions of dollars in unpaid care to the uninsured, and from businesses struggling with rising premiums, Fetter said in an interview yesterday in Tenet’s Dallas headquarters.

Tenet, the third biggest publicly traded U.S. hospital chain, provides about $450 million in unpaid medical care each year, he said. About 20 percent of the chain’s patient beds are located in Texas, where a quarter of the population is uninsured and the Republican governor, Rick Perry, has vowed to oppose all aspects of the 2010 health-care law.

“The biggest impact from the expansion for us would be in Texas,” Fetter said. “If tomorrow the Texas legislature and governor were to devise a way to expand Medicaid, investors would think that is a very good thing for the company. There isn’t a scenario I can envision that is worse than the status quo in Texas.”

Scott said a week ago he would approve the expansion, and Christie made his announcement yesterday.

Their decisions bring to 25 the number of states participating in the expansion of the federal-state health program for the poor, according to a tally by Advisory Board Co., a technology, research and consulting company based in Washington. Fourteen other Republican governors remain opposed to the expansion, including Perry of Texas.

‘Brazen Intrusions’

Perry announced in July that he won’t expand the Texas Medicaid program, saying the Affordable Care Act signed by President Barack Obama in 2010 represents “brazen intrusions into the sovereignty of our state.”

Tenet rose 2.9 percent to $38.95 at the close in New York.

Obama’s health law, which passed Congress without a single Republican vote, may extend insurance over the next decade to about 27 million people who are currently uninsured. The Congressional Budget Office estimates that 8 million more people will enroll in Medicaid programs next year because of the expansion, which raises the income eligibility limits.

Under the law, the U.S. government will pay the cost of covering people made newly eligible for the program until 2017. Thereafter, states don’t have to pay more than 10 percent of the cost. Christie said his decision to expand Medicaid will save New Jersey taxpayers $227 million in fiscal 2014.

Tenet Gains

Tenet, which operates 49 hospitals in 10 states, has centers located near the New Jersey border in Pennsylvania that will benefit from having fewer New Jersey residents coming without insurance, Fetter said. Tenet also will gain from Scott’s decision in Florida, where the company has more patient beds than in any other state.

An estimated 3.35 million of Florida’s 19.1 million residents will receive Medicaid this year, according to the state legislature’s Office of Economic and Democratic Research. An expansion under the federal law would increase that by 1.28 million during the next 10 years, according to a November 2012 report from the Kaiser Commission on Medicaid and the Uninsured, a program of the nonprofit Kaiser Family Foundation, a health-care research group based in Menlo Park, California.

Fetter said that while he thinks Texas will eventually follow the other states, he doesn’t see it happening quickly.

“Personally, I think it is only a matter of time and a matter of finding a face-saving opportunity out, but I’m not a politician,” Fetter said.

Lowering Costs

While Tenet waits for the number of uninsured to drop, the hospital is looking for ways to lower costs and become more efficient in the face of pricing pressure from insurers and the federal government, Fetter said.

The hospital chain has spent $600 million on an electronic medical records system that should help prevent doctors from doing unnecessary tests and procedures, according to Fetter.

He plans to recoup most of that cost from federal incentives offered under the 2009 economic stimulus bill. Tenet also is looking to save more than $80 million a year using standardized operating procedures among the chain’s doctors.

Fetter also said he expects more consolidation to occur among hospitals and Tenet will be looking more aggressively for deals in the future.

“Our appetite to make acquisitions is greater than it has been in the past,” he said. “There will be more consolidation in our industry because the pressures are pretty intense.”

Earnings Report

Tenet reported fourth-quarter adjusted earnings yesterday before interest, taxes, depreciation and amortization of $336 million that beat analysts’ estimates. Earnings excluding one-time items were 52 cents a share, 15 cents lower than the average of 19 analysts’ estimates compiled by Bloomberg.

Uninsured and charity admissions rose 1.1 percent in the fourth-quarter, the company said in a statement. Bad debt as a percent of revenues in the fourth quarter was 7.9 percent compared with 7.7 percent a year earlier.

Revenue climbed 7.3 percent to $2.33 billion, as adjusted admissions rose 2.9 percent and outpatient visits increased 7.3 percent. Tenet reaffirmed its 2013 forecast for adjusted Ebitda of $1.325 billion to $1.425 billion.