Tenet Healthcare Corp. (THC) may have surprised Wall Street by predicting a fourth-quarter profit, but its lack of further earnings visibility highlights the toll an ailing U.S. economy and tough credit markets are taking on the hospital industry.

Hospitals have struggled for years with tepid volumes of commercially insured patients and large numbers of uninsured patients who can't pay their medical bills. Now, the credit crisis has prompted many hospitals to delay capital spending and the recession threatens to further erode business.

While Tenet's preliminary report Thursday may ease some of Wall Street's concerns about the final quarter of 2008, the overall prognosis for the industry isn't encouraging.

"We definitely are hearing from the field that as this economic slowdown gets longer and deeper, that hospitals are hurting," said Caroline Steinberg, vice president for trends analysis at the American Hospital Association, in an interview this week.

A broad survey released Thursday by the American Hospital Association shows that 45% of hospitals have postponed capital projects that were planned to start within the past six months and some have stopped projects already in progress.

"While things out there may not be as bad as they could have been, they're still pretty bad out there," CRT Capital Group hospital analyst Sheryl Skolnick told Dow Jones Newswires.

Tenet shares are getting a slight bounce Thursday, up 3 cents at $1.27, but have lost more than three-quarters of their value since the end of August. Other stocks of publicly traded hospitals have struggled during that time, although not as badly. Health Management Associates Inc. (HMA) is down 71%, Community Health Systems Inc. (CYH) has fallen 49% and Universal Health Services Inc. (UHS) is off 41%.

Lifepoint Hospitals Inc. (LPNT) has lost 35% but is the only hospital stock to do better than the S&P 500, which has declined 36% during that period.

Beyond hospitals, shares of many companies that make medical devices, including pricey capital equipment that hospitals are finding it harder to buy, have also suffered in recent months amid signs the recession has slowed spending.

Lawmakers are so concerned about the fiscal health of the nation's hospitals that they have asked President Barack Obama to remember them in his job-stimulus plans, according to a letter from about 130 members of Congress on AHA's Web site.

Lawmakers called for policy moves to help support investment in hospital renovation and upgrades in health-care information and technology systems, as well as federal support of hospital debt to enable refinancing.

Since Medicare and Medicaid represent about half of hospitals' business, "what government does will have a huge impact on how hospitals fare," the AHA's Steinberg said.

For investors, low valuations could present an opportunity to buy shares of hospital companies operating in areas with relatively stronger economic pictures.

"We expect all the hospital companies to see pressure. We expect volume and bad debt pressures to be greatest in markets facing economic deterioration," Goldman Sachs analysts said in a research note this week, citing "growing disparity in local market economic health."

Unemployment and mortgage foreclosure rates in Tenet and Universal Health's markets deteriorated more late last year than those in Community Health and LifePoint's markets, according to a Goldman analysis. Health Management's markets were in the middle.

Hospital Volumes

While hospital volumes likely were down in the fourth quarter, it now appears - as Tenet's preannouncement suggests - they may not be as "absolutely dreadful" as some had feared during the period, CRT Capital's Skolnick said. Industry chatter suggests hospital admissions in January may not be as low as expected either, even with an unusually mild flu season, she said.

And while Tenet provided investors relief on its fourth quarter, the company neither confirmed nor revised its 2009 outlook, citing lack of clarity into demand for health-care services or patient and payor mix.

Hospital executives, in recent appearances, have given some insight into admissions trends and spending expectations.

HMA expects fourth-quarter admissions to be flat to down 1%, numbers that would represent an improvement over the previous two quarters, when admissions were down more than 3%.

Meanwhile, volume at Universal Health Services' acute-care hospitals was relatively flat in 2008, Chief Financial Officer Steve Filton said. Universal Health's Las Vegas market was one of the fastest growing markets in the country until one or two quarters ago, he said.

Starting in the third quarter, "we started to feel the pinch of a weakening economy a little bit more in the Vegas market, mostly because the gaming industry started to suffer." Profits in the Las Vegas market were roughly flat in the third quarter after years of growth, Filton said, "and again, I think we're likely to see that trend continue."

Credit Crisis

Apart from patient volumes, there is the credit crisis. Because of it, Skolnick said, an "almost irrational nuclear arms race" among hospitals to have the most advanced facilities "came to a screeching halt." Some hospitals truly needed upgrades, others spent because they had the cash, she said.

Hospitals that the AHA surveyed cited uncertainty about the economy, a decline in operating performance, lack of access to capital, high interest rates and bond rating downgrades in their decisions to delay projects.

HMA, for example, expects capital expenditures of roughly 4.5% of revenue, or $200 million, this year. The hospital operator had started 2008 targeting 6% of revenue for capital spending, then decided to exercise some caution.

"Toward the end of the year we made some conscious decisions to delay some purchases in light of the economic conditions," HMA spokesman John Merriwether told Dow Jones Newswires last week.

The AHA, which surveyed 639 hospitals, said significant numbers of them are finding it difficult to obtain access to capital from bonds, banks, philanthropy or private equity.

Hospital delays of upgrades are rippling to other health industry players, such as medical-equipment supplier Cardinal Health Inc. (CAH), which recently lowered its 2009 forecast because of hospital spending delays.

Cardinal joined a list of companies that sell medical products to hospitals, including Stryker Corp. (SYK) and Intuitive Surgical Inc. (ISRG), which have recently said a capital spending slowdown could - or already is - pinching sales. A lack of visibility regarding future spending trends also continues to dog device makers.

Intuitive, which makes costly surgical robots, will issue its official fourth-quarter report later Thursday.

-By Dinah Wisenberg Brin, Dow Jones Newswires, 215-656-8285; dinah.brin@dowjones.com

(Jon Kamp contributed to this report.)

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