TENET and Health Information Technology

Extract from Tenet's conference call on January 11, 2011.

"Slide 20 [see below] provides some important insights into our substantial investments in Health IT. We are spending $620 million on advanced clinical systems from 2009 to 2014, which is offset in large part by aggregate federal incentives of $320 million. These investments suppressed our earnings growth in 2010 and will do so again in 2011. But the impact on earnings turns positive next year, in 2012, as we expect federal incentive payments to exceed our implementation costs by $10 million. It‘s important to remember that we would have made these investments over time in any event, but the federal incentives motivated us to accelerate the program.

There are two important things not to miss on this slide. The first is the line with a circle around it. That‘s the effect on EBITDA, assuming zero operating benefits, but just netting the cost against the incentive payments. The second important point is off to the right. The penalties for not implementing these systems are significant [see note below]. There are penalties in perpetuity which have a net present value of approximately $315 million.

It makes sense to invest in these systems, and even more sense to maximize the incentives and minimize the penalties, because advanced clinical systems are essential to patient care, the competitiveness of our hospitals, and the satisfaction of our physicians".

NOTE: Perpetual penalties for not implementing HIT
The Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) authorizes incentive payments for eligible professionals who are successful e-prescribers. Under the MIPPA, the incentive payments are set at 2 percent for 2009 and 2010, 1 percent for 2011 and 2012, and 0.5 percent for 2013.

However, the MIPPA provides for a penalty to arise in 2012 for not successfully satisfying e-prescribing requirements. The penalty will be a percentage reduction in Medicare physician fee schedule payments equal to 1 percent for 2012, 1.5 percent for 2013, and 2 percent for 2014 and subsequent years.