As per an agreement with the federal government,
Tenet Healthcare Corp.
(
THC
) recently announced that it will receive $84 million in damages
related to inadequate Medicare reimbursements over the past several
years. The agreement is a part of anindustry-wide settlement
initiative undertaken by the U.S. Department of Health and Human
Services and the Centers for Medicare & Medicaid Services (
CMS
) to compensate for past underpayments in the Medicare inpatient
prospective payment system.
Tenet expects to receive the settlement amount by the end of the
second quarter of 2012. The transaction is projected to have an
incremental impact of $77 million on the company's operating
earnings in fiscal 2012.
Consequently, Tenet expects to witness an upward revision in
adjusted earnings before interest, taxes, depreciation and
amortization (EBITDA) while reporting its first quarter 2012
financial results on May 8, 2012. Tenet's adjusted EBITDA guidance
for 2012 currently stands at $1.225-1.350 billion. The guidance
includes an adjustment of $25-$50 million related to estimated
receipts from various settlements.
Concurrently, Tenet also revealed its projection of an
unfavorable adjustment of $2 million related to Medicare
disproportionate share hospital Supplemental Security Income
("SSI") during the first quarter of 2012. The adjustment comes on
the back of the recent release of SSI ratios by CMS. However, the
adjustment is not expected to have a significant impact on Tenet's
first quarter earnings as the company already has $49 million in
reserves for SSI adjustments.
The announcement offers a bit of respite for Tenet as it had to
enter a $42.75 million civil settlement deal with the U.S.
Attorney's Office, Northern District of Georgia and the Departments
of Justice and Health and Human Services earlier this week. The
company allegedly admitted several Medicare patients to 25 of its
inpatient rehabilitation facilities from May 2005 to December 2007,
even though the patients did not qualify for such treatment.
Inpatient rehabilitation units are generally reimbursed at a
higher rate compared to other facilities covered under Medicare
plans, as such units are for patients who require high degree of
medical supervision and skilled nursing and medical team. Thus,
Tenet received higher Medicare reimbursement from the government
for unnecessarily admitting patients in the inpatient
rehabilitation facilities.
Shares of Tenet, which competes with
HCA Inc.
(
HCA
) and
Community Health Systems Inc.
(
CYH
), surged 5.3% following the announcement on Thursday, to close at
$5.35 on the New York Stock Exchange.
Tenet currently carries a Zacks #2 Rank, which translates into a
short-term 'Buy' rating. We maintain a long-term 'Neutral'
recommendation on the stock.
COMMNTY HLTH SY (
CYH
): Free Stock Analysis Report
HCA HOLDINGS (
HCA
): Free Stock Analysis Report
TENET HEALTH (
THC
): Free Stock Analysis Report
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