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Tenet Healthcare Corporation (NYSE: THC) is experiencing an “incredibly busy year” when it comes to United Surgical Partners International (USPI), its large ambulatory surgery center (ASC) business.

In part, all of the action is driven by an increase in ASC higher-acuity caseload, with total joint replacements in Tenet’s ASCs up 23% year over year, with ongoing growth in urology and gastrointestinal (GI) procedures as well. Overall same-facility surgery volumes for Tenet’s ambulatory arm were effectively flat.

The higher-acuity-procedures growth is indicative of an overall trend in the ASC market, where procedures usually done in hospitals are being transferred to outpatient settings. 

“The ASCs are quite busy,” Tenet CEO Saum Sutaria said Wednesday during the company’s second-quarter earnings call. “Last year was an incredibly busy year. This year is a very busy year, from that perspective, but the acuity [mix] continuing to increase is a good fundamental marker of strength.”

Urology is currently divided between acute care hospitals and in-office procedures, Sutaria said. He mentioned that urologists and their groups are starting to move more surgical procedures into ASCs, providing opportunities for growth. 

“I think there’s a lot of room for not only growth, but also expansion of the range of services that can be offered in the ambulatory surgery setting,” the CEO explained.

The Dallas-based Tenet operates one of the largest ambulatory platforms in the U.S. As of June 30, USPI had at least 544 facilities in its network – 277 more compared to what USPI had at the end of 2017.

In Q2 2024 alone, Tenet added 11 new ambulatory surgery centers, including a new partnership with the Florida Orthopedic Institute. That deal added three surgery centers that perform over 15,000 cases annually. 

Tenet added even more centers in Q1.

“You may recall that we acquired a larger number of centers in the first quarter of this year,” Sutaria said. “The integration of those centers is on track, and the operating performance of the acquired centers has been in line with our expectations. We continue to be pleased with USPI’s de novo development activity, with nearly 25 centers currently in syndication stages or under construction.”

Higher-acuity procedure tailwinds

Looking ahead, favorable reimbursement and regulatory trends, which increase the number of procedures suitable for ASCs, boost confidence in USPI’s growth projections, Sutaria said. 

Tenet’s ambulatory care segment had 415,376 same-facility surgical cases in Q2 2024, down compared to 417,280 cases in Q2 2023.

Same-facility surgery revenues grew 7.1% on the quarter.

“The growth [outlook] in this segment, I think, is actually more predictable over the long term than it is in other health care service segments,” Sutaria said.

The increase in net revenue per case is driven by a combination of higher acuity and a strong mix of procedures, he added. By incorporating higher-acuity activities into ASCs, including expanding standard service lines and introducing new segments like orthopedics, cardiac and urology, revenue per case has increased.

Year to date, USPI has added 79 service-line additions.

“As we build higher-acuity activity into the ASC portfolio, both in some of the standard service lines by expanding or increasing the range of procedures we perform there, and then obviously in newer segments, like orthopedics, cardiac, urology, etc., robotics, you see that type of increase,” Sutaria said. “And the mix has been strong. So, both of those in combination give us a lot of optimism about the ability to sustain net revenue per case increases over prior year.”

Tenet’s net operating revenues for Q2 2024 were $5.10 billion, up slightly compared to $5.08 billion in Q3 2024.

Ambulatory net operating revenues for Q2 2024 were $1.14 billion, an increase of $199 million compared to last year’s second quarter.

“As we fully emerge from the pandemic, our repositioned portfolio of businesses is generating stronger results with attractive margins and strong free cash flow generation,” Sutaria said. 

Capital deployment strategies

Ambulatory surgery centers will be a main focus for Tenet going forward, Sutaria said. 

“In terms of capital deployment going forward, our top capital priority remains the expansion of low-cost, high-quality ambulatory surgical centers for the communities around the country,” he said. “This is a very fragmented marketplace, and we will use our disciplined approach to improve access, patient care and performance for our physician partners to create value.”

Analysts at Stephens Inc. agreed that the company is showing signs of strong performance in terms of  inpatient admissions growth, revenue per surgical case growth at USPI and Medicaid supplemental payments.

“The only noteworthy blemish to an overall strong guidance revision package related to THC trimming full-year USPI surgical case growth expectations to +1% to +2% (vs. +1.0% to +3.0% prior),” Stephens analysts wrote in a note.

ASC business volumes can be inconsistent, Sutaria said, sometimes significantly exceeding typical growth ranges and other times falling below them.

However, over a 10- to 15-year period, the business has shown remarkable consistency, even before Tenet’s involvement with USPI, he said. 

“The thing about the ASC business, which is again, if you go back and look, and we’ve done this very carefully over the last 10 to 15 years, both pre- and post-Tenet being a participant with USPI, the volumes can be lumpy,” he said. “There are years where the growth significantly outperforms the typical range and then there are years where it’s at or below the lower end of the range. But from a long-term perspective, it’s an incredibly consistent business.”