In the midst of controversies that have slashed the company's stock price by more than half since October 2002, Tenet Healthcare(NYSE: THC) managed to turn in a solid second quarter today.

Sales were up 11.3% to $3.78 billion from the previous quarter's $3.39 billion. Patient admissions rose 4.3%, ahead of its 10-quarter average rise of 3%, thanks to aging baby boomers.

Surpassing analysts' expectations of $0.69 a share, net income excluding items jumped to $355 million (or $0.72 a share) over last quarter's $279 million ($0.56 a share). That's a 27.2% increase. Including items and charges, Tenet earned $315 million ($0.64 a share) this quarter and $89 million ($0.18 a share) last year.

Tenet generated $28 million in free cash flow during the quarter. Free cash flow for the first six months of the fiscal year comes in at $529 million -- well below the $603 million generated during the first six months of fiscal 2002. However, the drop is not particularly worrisome and can be attributed to a higher tax bill and stock repurchases this quarter. The company spent $381 million of free cash flow to buy back about 15 million shares at an average cost of $24.94 a share.

During the quarter, Medicare paid Tenet $213 million in outlier payments, a 31.5% jump from last year's Q2 but an 18.1% decline sequentially. Because its outlier billing practices have come under fire, it announced last week that it will voluntarily reduce its outlier bills to Medicare. Going forward, Tenet will receive $8 million a month instead of the previous $65 million.

Its lowered fiscal 2003 estimates, which took those assumptions into account, prepared the market for the news. Tenet lowered estimates to $2.40 to $2.60 a share again today. The issue's still not over, however, as the Justice Department has filed suit against Tenet, alleging it owes Medicare about $323 million in damages due to overbilling.

Tenet's earnings growth will likely slow because of the reduced outlier payments. In fact, it expects to only earn between $1.80 and $2.20 for fiscal 2004.

But as the second-largest hospital operator in the country, the company is still positioned nicely to benefit from an increasingly aged and ill population. Investors (such as David Gardner in Motley Fool Stock Advisor) interested in a beaten-down company with a healthy outlook might want to give it a checkup.