For Tenet Healthcare (NYSE: THC), 2024 has been a “transformative year.”

In part, that transformation comes from Tenet making progress on its deleveraging goals by divesting hospital assets, a strategy that will, in turn, free the company up to execute on M&A opportunities and more moving forward. And at the same time, Tenet’s ambulatory surgery center (ASC) business – United Surgical Partners International (USPI) – continues to thrive, propelled by higher-acuity procedures shifting into lower-acuity settings.

“Obviously, this has been a transformative year for the company,” CEO Saum Sutaria said Wednesday during a health care investor presentation. “A lot of things look like they came together relatively quickly. But, you know, obviously we’ve been working on many of these things for a few years.”

As of June 30, USPI had at least 544 facilities in its network. In Q2 2024 alone, Tenet added 11 new ambulatory surgery centers, including a new partnership with the Florida Orthopedic Institute.

USPI started to take off in 2023, when the U.S. healthcare system began recovering from disruptions related to the COVID-19 public health emergency.

That momentum has kept up in 2024 for USPI, which Sutaria called “the strongest ASC platform in the country.”

“Acuity keeps improving in what we’re doing in the ASCs, and therefore, we’re beating our earnings expectations this year at USPI,” Sutaria said. “And we put out a pretty bold earnings target for the year at the beginning of the year, when we gave guidance.”

In its Q2 earnings results, the Dallas-based Tenet reported ambulatory net operating revenues for Q2 2024 of $1.14 billion, an increase of $199 million compared to last year’s second quarter.

Coming off its strong second quarter, Tenet increased its guidance range of $3.8 billion to just under $4 billion.

“We’re pleased with that, and the fact that we’ve been able to raise that guidance in the middle of the year based upon performance,” Sutaria said. “So USPI, … based on performance, organic growth, [from a] cost-management standpoint, etc., is going very well.” 

As an organization, USPI has a competitive advantage in attracting physician partners, Sutaria believes. He said that’s thanks to its reputation for profitability, safety and compliance, likening USPI’s culture to a “reputable country club,” in the sense of providing high-quality services with safeguards to ensure the caliber of the overall package.  

“There are a lot of benefits from being part of the club, but you’ve got to follow some of the rules, because we intend to safeguard the investments that our partners make and not put them at risk with the things we do,” he said.

USPI is also differentiated from other ASC operating companies, Sutaria said, because it has a track record of growing individual surgery centers, whether that’s by converting them to multi-speciality facilities or running more operating rooms.

“We’re just better at doing that, right?” Sutaria said. “We’re better at running multi-specialty. We’re better at expanding the facilities. We’re more comfortable running ASCs with four, six, eight [or more] operating rooms than typical smaller ASCs, as we expand them, so we give [physicians] a runway. And that’s really what I think partners look for.”

Looking ahead, USPI is poised to continue expanding through both acquisitions and de novo development, with an emphasis on growing its footprint in such high-acuity, multi-specialty ASCs, Sutaria said. 

“If we look forward, I think what you’ll see is more of a trend toward de novo development, early-stage assets and things of that nature that we build up in addition to our acquisition activity,” he said. 

Historically, Tenet has targeted around $250 million in M&A. As the company keeps on improving its financial position and deleveraging, it’s positioned to make a big splash on a deal that makes sense.

But neither Tenet nor USPI will stray away from the “disciplined” M&A approach currently in place, Sutaria suggested.

“We have developed a disciplined process around diligence and evaluation of deals we’re going to do,” Sutaria said. “I would not say that because of the change in the flexibility, with respect to our balance sheet, that we plan on eliminating or somehow eroding the discipline that we’ve developed in the M&A environment for USPI.”