Tenet sees continued upward pressure on bad debt

NEW YORK (Reuters) - Hospital chain Tenet Healthcare Corp (THC.N) will keep feeling the strain of already-high bad debt levels as long as the U.S. unemployment rate remains high, Chief Executive Officer Trevor Fetter said.

"As long as jobs are lost and patients have financial stresses causing them not to pay their bills, that will put upward pressure on that bad debt," Fetter said Tuesday at the Reuters Health Summit in New York.

Bad debt is a lagging indicator of the economy's health, he said, because as people lose their jobs, they have the option of continuing insurance under Cobra.

The Dallas-based company, which operates 50 hospitals concentrated in California, Florida and Texas, reported that its bad debt rose to 8.5 percent of its sales in the third quarter.

That level is up sequentially and from a year earlier, but was lower than management had expected, Fetter said.

"This is about the highest that it has been in most people's experience in this industry over a very long time," he said. "It falls in the category of one of those unsustainable trends in health care. There is just upward pressure on it all the time."

One of the biggest problems Tenet faces, he said, is negotiating prices with medical device makers.

"The margins on (medical) devices are extremely high," he said, noting that doctors wield great influence on which devices are purchased.

Fetter, who has been with the company since 1995 and was previously chief financial officer, said he supported healthcare reform and believed the industry would ultimately get behind the effort.

The hospital industry will benefit from more patients gaining health insurance coverage under proposed reforms, Fetter said.

One reason why is newly insured people are more likely to seek out preventive care instead of waiting until they need the treatment in the emergency room.

Tenet's total cost to treat the patients without health insurance was $130 million in the third quarter, roughly double what the company received in reimbursements for the uninsured, Fetter said.

Tenet may eventually seek to diversify geographically after paying down debt, he said.

"Geographic diversification would be a smart strategy for us" because the company is concentrated in states with high unemployment, Fetter said.

The company's net debt is now 3.7 times trailing earnings before interest, tax, depreciation and amortization, or EBITDA, down from a multiple of 5.8 a year ago. Its goal is to cut that ratio to below 4.0, Fetter said.

"I'm pretty comfortable with where we are today," he said.

The company's shares were up 20 cents, or 3.8 percent, at $5.50 on the New York Stock Exchange.

(Reporting by Debra Sherman and Susan Kelly; Editing by Lisa Von Ahn)