HOSPITAL CHAIN HURT IN TRADING TENET FALLS TO 1-YEAR LOW.

Byline: Evan Pondel Staff Writer

Shares of Tenet Healthcare Corp. fell 26 percent Monday to a new 52-week low after the hospital operator significantly reduced its quarterly outlook for the rest of the year.

Tenet shares declined $4.22 to close at $12.01 on the New York Stock

Exchange. A year ago, shares traded at $74.75, but in July the company initiated a three-for-two stock split that initially brought shares down to the mid-$40 range.

The Santa Barbara-based company recently completed a budget review that revealed weak revenue trends and increasing cost pressures from past pricing practices.

Tenet is entrenched in a lawsuit brought by the U.S. Justice Department on allegations of Medicare fraud. The federal scrutiny followed reports that the company may have inflated charges to the Medicare program to bolster revenues.

``The sharks smell blood in the water,'' said Robert Mains, analyst with Advest Inc. in Saratoga Springs, N.Y. ``Earnings are considerably worse than everyone expected.''

Tenet would not reveal an actual profit target for the second quarter, although the company did say diluted earnings from continued operations for the first two months of the period were 2 cents a share. Analysts previously expected earnings per share for the quarter of 34 cents, according to a poll conducted by Thomson Financial/First Call.

The company expects third- and fourth-quarter profits combined to total between 40 cents and 50 cents, compared with the combined 70 cents analysts had projected.

For the 12-month period beginning July 1, Tenet anticipates earnings in the range of 80 cents to $1, versus analysts' expectations of $1.40, according to First Call.

``Tenet is navigating through a very challenging transitional period,'' Trevor Fetter, president and acting chief executive, said in a statement. ``The pricing practices pursued by the company's hospitals in recent years are making it difficult for many of our hospitals to obtain managed-care price increases at normal industry levels in 2003.''

Among the other ailments is Tenet's increase in salary and benefit costs as a nursing shortage has forced many hospitals to pay more for services. To exemplify this increase, Tenet said the company decided last year to increase its 401(k) matching benefit for employees to 5 percent from 3 percent - adding $36 million of annual expense in 2003. The company also said union organizing efforts, particularly in California, continue to squeeze costs.

Mounting expenses have also been coupled with several management changes. Most significant was the recent resignation of Tenet Chairman and Chief Executive Officer Jeffrey Barbakow.

Given the company's current state, Andreas J. Dirnagl, analyst with Gerard Klauer Mattison & Co. in New York, said Tenet is finally coming clean with the public.

`'And despite all of the drama this company has been through, they are not an Enron. They have real assets, such as their hospitals,'' he said.

Tenet owns and operates 114 acute-care hospitals, including Encino Tarzana Regional Medical Center. ``And because of these hospitals, the company is in no danger of filing for bankruptcy,'' Dirnagl said.

Now under new management, the company is focusing its efforts on communicating with investors. Steven Campanini, a Tenet spokesman, said the company's announcement Monday was difficult, but necessary.

``The announcement was put out to provide a realistic and thorough look as to where the company stands,'' Campanini said.

Some analyst were irked by the company's decision not to host a conference call with the investment community about the earning's estimates. But Campanini said the company thought a statement was far more appropriate because it carefully articulated several details.