Tenet net operating revenues increase 7.1% to $2.506 billion for first quarter 2011

Tenet Healthcare Corporation (NYSE:THC):

“Our strong first quarter results reflect solid performance in virtually every aspect of our business”

Key Metrics (all percentage changes compare Q1'11 to Q1'10)

• Admissions increased 0.6 percent, second consecutive quarter with an improving trend
• Outpatient visits grew by 6.1 percent, and adjusted admissions grew by 2.3 percent
• Adjusted EBITDA of $379 million compares to $298 million in Q1'10, an increase of 27.2 percent

Tenet Healthcare Corporation (NYSE:THC) today reported adjusted EBITDA of $379 million for the first quarter ended March 31, 2011, an increase of $81 million, or 27.2 percent, compared to $298 million for the first quarter of 2010. Income from continuing operations before income taxes was $142 million in the first quarter of 2011, an increase of $49 million, or 52.7 percent, as compared to $93 million in the first quarter of 2010. Net income attributable to common shareholders was $73 million, or $0.14 per diluted share, compared to $88 million, or $0.17 per diluted share, for the first quarter of 2010, reflecting increased income tax expense of $48 million.

"Our strong first quarter results reflect solid performance in virtually every aspect of our business," said Trevor Fetter, president and chief executive officer. "Volume growth was a clear highlight in the quarter. Growth in both paying admissions and total admissions turned positive in the quarter. This is the second consecutive quarter in which we have improved the trend in year-over-year changes in patient volumes. We were also very pleased with the robust performance in outpatient volumes with outpatient visits growing by 6.1 percent. Surgeries grew by 0.9 percent. Other factors contributing to the strong quarter included managed care pricing growth and improved performance on bad debt expense, which declined to 7.3 percent of revenues. Earnings growth from these factors was further enhanced by provider fees and government healthcare information technology incentives recorded in the quarter. Reflecting this strong start to the year, we are raising our 2011 Outlook for Adjusted EBITDA by $25 million, to a new range of $1.175 billion to $1.275 billion."

Discussion of Results (Percentage changes compare Q1'11 to Q1'10, unless otherwise noted.)

Admissions increased by 0.6 percent. This increase compares very favorably to the respective declines of 3.5 percent and 2.0 percent in the third and fourth quarters of 2010. Outpatient visits increased by 6.1 percent, again showing a strong improving sequential trend compared to the increase of 2.9 percent in the fourth quarter of 2010 and the decline of 2.0 percent for the third quarter of 2010. Adjusted admissions increased by 2.3 percent in the first quarter of 2011.

Net operating revenues were $2.506 billion, an increase of $167 million, or 7.1 percent, compared to net operating revenues of $2.339 billion in the first quarter of 2010. Net operating revenues in the first quarter of 2011 included $63 million from the 2009-2010 California Provider Fee Program and $13 million from the 2010 portion of the Pennsylvania Provider Fee Program, which received final CMS approval in the first quarter of 2011. The first quarter of 2011 also included Medicaid health information technology incentives of $25 million. The favorable impact of these items on net operating revenues were partially offset by an unfavorable reduction in contributions from prior year cost report settlements which added $15 million to net operating revenues in the first quarter of 2010, but added only $1 million in the first quarter of 2011. Net patient revenues per adjusted patient day increased by 5.5 percent.

Total controllable operating expenses increased by $93 million, or 5.0 percent, which is consistent with the assumptions in our 2011 Outlook. This increase is primarily related to salaries, wages and benefits, which includes the impact of the annual salary increases for our employees. In addition, health information technology implementation and other related expenses increased $12 million in the first quarter of 2011 as compared to the first quarter of 2010. Controllable operating expenses is defined as the sum of salaries, wages and benefits, supplies, and other operating expenses.

Bad debt expense declined to $182 million from $189 million in the first quarter of 2010, a decline of $7 million, or 3.7 percent. The ratio of bad debt expense to net operating revenues declined to 7.3 percent, compared to 8.1 percent in the first quarter of 2010, a decrease of 80 basis points. Uninsured revenues declined $11 million in the first quarter.

Net cash used in operating activities was $2 million in the first quarter of 2011 compared to a cash use of $22 million in the first quarter of 2010, a favorable change of $20 million. This was primarily the result of higher Adjusted EBITDA, partially offset by net income tax payments of $24 million in the first quarter of 2011 on prior year tax settlements, compared to $17 million in net income tax refunds in the first quarter of 2010, an adverse change of $41 million. Capital expenditures were $116 million in the first quarter of 2011, compared to $83 million in the first quarter of 2010, an increase of $33 million. Cash and cash equivalents were $267 million at March 31, 2011, a decrease of $138 million from $405 million at December 31, 2010. In addition to the above items, the decrease in cash includes the use of $18 million to purchase three outpatient centers and the receipt of $3 million from the sale of a medical office building.