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TENET HEALTHCARE BEATS ON HIGHER VOLUMES, STRONG ACUITY, MODEST PHYSICIAN FEE
GROWTH IN Q3

By Dave MuoioOct 30, 2023 6:59pm
Tenet HealthcareEarningsAmbulatory Surgery Centerssubsidies

Executives hailed Tenet Healthcare's two-pronged strategy of ASC growth and
high-acuity hospital service lines for volume and revenue growth. Meanwhile,
Tenet stood out from its peers this earnings season with a 15% rise in
professional fees that landed "in line" with the company's earlier projections.
(primeimages/iStock / Getty Images Plus)

Tenet Healthcare's dual strategy of rapid ambulatory surgical center additions
and a shift toward high-acuity hospital care capabilities paid off in the third
quarter, with earnings from both sides of the business coming in “well above our
expectations,” Chief Financial Officer Dan Cancelmi told investors Monday.

The company reported third-quarter net operating income of $101 million ($0.94
per diluted share), down from the $131 million ($1.16 per diluted share) of a
year prior. Net operating revenues for the quarter came in at $5.06 billion, up
from $4.8 billion.







CEO Saum Sutaria, M.D., highlighted the for-profit’s “agile approach to managing
operating expenses” that have kept Tenet’s supply and labor expenses manageable
“without any cost to capacity.”



















He also told investors that prior renegotiations of physician contracts during
the height of the pandemic held year-to-date professional fee growth to about
15% year over year.

Though that number is expected to grow in the year’s remaining quarter, the
increase has been “in line with what our expectations were this year.” It makes
Tenet an outlier compared to fellow for-profits HCA Healthcare, Universal Health
Services and Community Health Systems—all of which reported last week an
unexpected spike in these costs due to implementation of the No Surprises Act.  

“Even back during the pandemic, I made some comments about the fact that we
undertook a comprehensive review of every physician service contract in the
company to restructure, consolidate, scale services and work with some of our
better partners,” Sutaria told analysts Monday afternoon. “And when those
weren't available, either due to market penetration issues or competitive issues
they may have had, we looked at opportunities to insource.







“So yeah, we understand that these fees are going up. But all year long, and
going into next year, we're planning them in in the way we issue guidance,” he
said.

On the subject of guidance, executives raised fourth-quarter net operating
revenue projections to a range of $5.13 billion to $5.33 billion, as well as
adjusted net income to $119 million to $184 million ($1.12 to $1.74 per diluted
share). The new full-year EBITDA guidance range of $456 million to $451 million
is 5% higher than initial guidance and the third time this year Tenet has
increased its projections, Cancelmi noted.

Both revenue and earnings were above analysts’ expectations. Tenet’s stock was
up about 3% after-hours Monday evening.

“We believe in the strategy we're pursuing around acuity, capital efficiency,
thoughtful management of our capacity for the services we offer and, obviously,
the expansion and growth of [our ambulatory business segment],” Sutaria said.
“And [Q3’s 17% EBITDA] margin is notable for Tenant as an entity, which I don't
think we've seen for a very long time, if ever. So that's really the pathway
we're down.”







For United Surgical Partners International, its ambulatory business, Tenet
reported $941 million in third-quarter net operating revenues, up year over year
from $806 million.

While same-facility surgical cases rose 4.1% year over year, Sutaria highlighted
“attractive volume growth in high-acuity service lines, including mid-teens
growth in total joint replacements” in ASCs. Tenet also made progress in its
USPI portfolio expansion strategy, adding six new ASCs via purchases and a
pipeline of more than 30 de novo centers on the way.

Among its acute care hospitals, Tenet’s net operating revenues rose 3.7% year
over year, from $3.78 billion to $3.92 billion, due to a combination of higher
adjusted admissions and improved pricing yield.


RELATED

HCA Healthcare's newly consolidated physician staffing venture is bleeding $50M
per quarter, execs tell investors

Same-hospital admissions and adjusted admissions rose 0.6% and 0.4% year over
year, respectively, though outpatient visits fell 2%, ER visits dipped 0.9% and
hospital surgeries fell 0.7%. The company highlighted a 4.5% increase in
year-over-year non-COVID inpatient admissions and patient acuity levels that
yielded a “strong” revenue per adjusted admission increase of 3.2%, which
Sutaria attributed to Tenet’s strategy of prioritizing high-acuity service lines
across its markets.

“Our third-quarter results lend further credence to our hospital strategy of
being focused on acuity rather than all things to all people,” he said.

Sutaria said Tenet's hiring and retention efforts have produced a “substantial
reduction” in contract labor usage to 3.1% of Tenet’s consolidated salaries,
wages and benefits expense, “which is the high end of pre-pandemic levels.” The
stronger in-house workforce helped Tenet reduce its contract labor utilization
without reducing capacity, though “in the fourth quarter as demand rises, it is
possible we will invest additional resources to ensure access,” he said.

Together, the two units and Conifer, Tenet’s revenue cycle management services
business, have brought in $15.17 billion in year-to-date net operating revenues,
up from last year’s $14.18 billion. Net income across the nine months is $367
million, also up from 2022’s $308 million.

Executives said they would hold off on 2024 guidance until Tenet’s next earnings
call but generally signaled optimism under analysts’ prodding due to the
company’s stable starting point, USPI’s growth trajectory and the tailwinds of
recovering labor and industrywide volumes.

Tenet HealthcareEarningsAmbulatory Surgery CenterssubsidiesHospitalsFinance
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