
Health care facilities in some of the nation’s largest markets have had to power through multiple natural disasters over the last couple months, including tropical storms, hurricanes and wildfires.
Tenet Healthcare Corporation (NYSE: THC) is no exception. But considering recent events, the company has been “fortunate” in its ability to plan and recover, executives said during a 2024 third-quarter earnings call Tuesday.
Despite weather-related setbacks, the Dallas-based Tenet still had a strong quarter bolstered by strategic divestments and growth in its ambulatory surgery center (ASC) business, United Surgical Partners International (USPI). As of Sept. 30, USPI had ownership interests in 520 ASCs in 37 states.
“148 facilities were impacted and, at some point, shut down,” Tenet CEO Saum Sutaria said during Tuesday’s call. “Only one of them, at this point, is still shut down. We’re confident that we will work on bringing back that business in the fourth quarter.”
USPI’s Q3 2024 net operating revenues totaled $1.14 billion, according to Tenet’s financial results. That’s a roughly 21% increase compared to the $941 million the segment brought in during the same period last year.
The increase can be attributed to several factors, including Tenet’s strategic focus on higher-acuity procedures in outpatient settings, which led to an 8.7% increase in same-facility revenue. Cases were up 1% but net revenue per case was up 7.6%.
“We’re expecting the fourth quarter to have higher acuity, better mix, therefore better margins, and we’re maintaining our commitment to our guidance that we raised at the end of the second quarter,” Sutaria said.
Overall, Tenet’s Q3 2024 net operating revenues totaled about $5.12 billion – on par with the $5.07 billion the health care company posted in last year’s third quarter.
Accelerated ASC expansion
Since the beginning of the year, Tenet has accelerated its ASC expansion, adding 45 centers, many of which were obtained through high-profile acquisitions.
Last quarter, USPI added 11 new ambulatory surgery centers, including a new partnership with the Florida Orthopedic Institute, which is made up of three surgery centers that perform over 15,000 cases annually.
This quarter, USPI added a partnership with Synergy Orthopedics to develop the largest dedicated musculoskeletal outpatient surgery center in San Diego.
“One of the reasons we’re really pleased [is] the net revenue per case growth and the acuity growth with USPI,” Sutaria said. “Because we added 45 centers and more than that this year, but that 45 center tranche, that was heavily nonorthopedic at the beginning of the year, and therefore, had lower average net revenues per case than in a truly orthopedic dedicated center.”
Beyond acquisitions, Tenet has continued to push forward with de novo development.
Approximately 20 additional facilities are currently in syndication or under construction, Sutaria said.
In Q3, Tenet completed the sale of its Alabama hospitals. The proceeds from these divestitures, along with Tenet’s sustained revenue growth, will allow the company to strategically invest in more outpatient facilities, CFO Sun Park said during the call.
“We also anticipate further contributions from recent investments and partnerships in the hospital segment, as well as from M&A and de novo development in USPI,” Park said.
Growth and challenges
The ASC giant will keep targeting strategic acquisitions in specialized areas, Sutaria said.
Orthopedic volumes are strong, and total joint replacements in the ASCs were up 19% over the prior year.
“The market expands, and the market has been expanding for these services when you can offer it in an ambulatory setting,” he said. “And so we’re focused on that more than anything else – continuing to expand the marketplace.”
Around 2020, USPI leadership decided to lead in outpatient bone, joint and spine care, taking advantage of the industry shift toward outpatient care, Sutaria said. The shift isn’t about reducing overall demand for care, but rather expanding it, he added, particularly as more orthopedic surgeons are introduced to ASCs early in their careers.
“We’re focused on expanding the marketplace to reach younger and younger orthopedic surgeons,” he said. “They aren’t typically exposed to ASCs in their training, but by introducing them earlier in their careers, we can show them that this is a very viable place to practice.”
The company is also seeing ongoing growth in urology and GI procedures.
“Our mindset is not to be satisfied with whatever the margins look like today,” Sutaria said. “Ongoing improvements in labor, supplies and other expenses, as well as the stabilization of the staffing and physician staffing environments, all present opportunities to optimize the business moving forward. For example, capacity utilization remains an important area for us in terms of finding more efficiency.”
One thorn in USPI’s side is the ongoing challenges with fully adopting the Two-Midnight Rule in Medicare Advantage.
Sutaria noted that the rule’s incomplete adoption is limiting admissions growth by about 50 to 100 basis points.
The Two-Midnight Rule is a Medicare guideline that considers a hospital stay as inpatient if a physician expects the patient to need hospital care spanning at least two midnights. If the stay is expected to be shorter, it’s typically classified as outpatient care, covered under Part B, unless specific medical needs justify otherwise.
There is a mounting administrative burden from managed care disputes and denials, Sutaria said, which has significantly raised costs for both payers and providers.
“At some point, there has to be a solution to this because it’s really just wasted administrative time and cost,” he said.