A Medical Device Daily
Tenet Healthcare (Dallas) reported on Thursday that, based on results of an investigation regarding contractual allowances for managed care contracts sought by the Securities and Exchange Commission (SEC), it will restate financial results for fiscal years 2000, 2001 and 2002, the seven months ended Dec. 31, 2002, and the full year ended Dec. 31, 2003.
As a result, Tenet also will restate its previously reported 2004 results to take an income tax charge of $47 million. It said no change is required for its results for the first three quarters of 2005.
The restatements will mean that certain reserves that had been recorded earlier will be reversed, and certain revenues and expenses will be recognized sooner than originally reported. The effect will be to increase reported results for fiscal years ended May 31, 2000, 2001 and 2002, and to reduce results for the seven months ended Dec. 31, 2002 and the full year ended Dec. 31, 2003.
Specifically, the restatements are expected to increase previously reported net income in FY00 by about $22 million, or 5 cents a share; increase previously reported net income in FY01 by about $17 million, or 3 cents a share; increase previously reported net income in FY02 by about $30 million, or 6 cents a share; reduce net income by about $15 million, or 3 cents a share in the “stub period“ of seven months ended Dec. 31, 2002; and increase a previously reported net loss by about $55 million, or 12 cents a share in the year ended Dec. 31, 2003.
The company said it has filed additional details of the restatements with the SEC and that the restatements are subject to adjustment until fully audited results for the restated periods are reported in its 2005 annual report, expected to be filed about Feb. 28.
The company said that the restatements would likely result in an increase or decrease range from 3% to 9% in 2000-2003, and diluted earnings or loss per share in the same increase/decrease range.
The $47 million income tax charge, equal to 10 cents a share, to be taken for the year ended Dec. 31, 2004, relates solely to the impact of the restatements on a valuation allowance for deferred tax assets previously established by the company.
Trevor Fetter, Tenet's president and CEO, said that the investigation found no “widespread issues with contractual allowances for managed care accounts across the company. But it did turn up problems that require restatements of certain prior-year results.“
Fetter added: “We continue to address the legacy of mistakes made by this company in the past. Since 2003, we have made and continue to make real and profound changes to enhance all aspects of Tenet's operations.“
The SEC had asked the company to investigate allegations the commission had received from a former company employee concerning inappropriate managed care reserves at three of its hospitals in California through FY01.
The company investigation then went beyond this request, it said, and “found several other reserve issues unrelated to managed care contractual allowances for which the company will make adjustments . . .“
While Tenet said that the restatements should not affect its basic credit status, the company noted that the time required to complete the investigation delayed the effective date of its previously filed registration statement for $800 million principal amount of 9% senior notes, due 2015. Hence, the company will pay each holder of the senior notes special interest in addition to the interest accrued on the notes.