On Monday in advance of the Tuesday quarterly earnings announcement, I took my lumps and closed out of my long Tenet position. (While selling it yesterday was a good idea, I’d have been happier if I hadn’t bought it $2.5 higher). There was no bounce off the 5 year low at $10, and yesterday it traded down to $9.30 then back up to $10 in advance of the numbers.

The numbers came out and were pretty confusing in that the loss per share quoted ($2.04) included some one time losses but depending on who you believe Tenet either made an operating profit of 7 cents or a loss of 15 cents on the quarter. (Analysts’ consensus was for 0 cents). The stock traded down as low as $9.15 in the first hour but by the middle of the day it was around $9.50 roughly 5% below where it was a couple of days ago, and late in the day it spiked up to around $10.25.

As the hucksters at TheStreet.com report, overall it looks dismal for Tenet. The main problem is that as they retrench by selling and closing hospitals, same store (hospital) cash flow appears to be getting much worse, which is a result both of increasing bad debts (i.e. inability to collect) and reduced ability to charge payers (i.e. Medicare) as much as they could back in the good old days (Pre-Redding). So cash flow is heading the wrong way, and there isn’t that much cash left to flow out—hence the need to change the terms of the credit line, which is what caused the latest stock plummet.

Tenet is still an interesting stock to trade. If it gets out of the current mess, you can buy a hospital chain that’s about half the size of HCA for about 25% of the price. On the other hand you might be buying a company that cannot stop itself heading into chapter 11.

Here’s where it all gets interesting. The unknown variable in all of this is what fines Tenet has to pay the government for the indiscretions at Redding. Some estimates are that the overcharging was in excess of $1.9 Billion. Tenet has $30m-odd set aside to pay the fines. If the government wants it all back, then it’s hard to believe that anything other than chapter 11 is possible. If on the other hand the government wants to keep Tenet alive to pay its fine, then somewhere down here Tenet is just maybe a hell of a buy. It just wasn’t one 3 weeks ago, as I now know!