Tenet Healthcare Corporation (NYSE: THC) is pivoting toward higher-acuity services to mitigate policy risks in the face of legislative uncertainties, including Medicaid cuts and site neutrality.
The company has already increased its higher-acuity procedures volume, but that trend will continue.
“Our focus is on continuing to build and expand our high-margin service lines,” CEO Saum Sutaria said at the recent Barclays Global Healthcare Conference.
To that tune, Tenet is investing in high-acuity care at its hospitals, while also deploying capital to scale ambulatory surgery center (ASC) assets in markets where both the demographic demand and physician partnership potential are favorable, Sutaria said.
Tenet is a diversified health care services company headquartered in Dallas, Texas.
Tenet ended 2024 on a high note, in part due to strong performance at its ASC division, United Surgical Partners International (USPI). As of Dec. 31, 2024, USPI had interests in 518 ambulatory surgery centers (375 consolidated) and 25 surgical hospitals (seven consolidated) in 37 states.
Tenet’s net operating revenues for Q4 2024 came in at about $5.1 billion, compared to roughly $5.4 billion in the prior-year period, with the ASC business playing a key role in offsetting challenges on the hospital side.
“We intend to invest approximately $250 million each year towards M&A in the ambulatory space,” Sutaria said during a Q4 earnings call, adding that the company’s pipeline of opportunities remains strong, and that USPI anticipates adding 10 to 12 de novo centers in 2025.
While political pressures in Washington to reduce spending and implement Medicaid funding cuts are a key issue for operators reliant on public payers, USPI is largely insulated from Medicaid cuts, Sutaria said.
“We believe our pricing and our margins are highly sustainable,” he said. “We don’t have a lot of exposure to Medicaid, and we think the site-neutrality risk at USPI is minimal. This is an incredibly sustainable, investable business, even in this political uncertainty.”
Because USPI operates almost entirely on freestanding rates and is not heavily dependent on Medicaid volume, threats of large-scale cuts to that program would not disproportionately affect its ASC segment, Sutaria said.
The same logic applies to site-neutrality risks, which typically fall heaviest on hospital outpatient departments (HOPDs).
Sutaria added that Tenet’s strengths lie in expanding high-acuity service lines and forging strong physician partnerships.
“The No. 1 thing is the quality of the partnership and the physicians who are growth-minded and refreshing,” he said.
And Tenet is focused on same-store revenue, rather than breaking out volume and pricing components separately, CFO Sun Park said during the call.
“We think this guidance actually better reflects the actual strategic and day-to-day operational moves that we’re making at USPI,” Park said.
Tenet’s contract labor rate is near its lowest pre-pandemic level, which is helping the company to maintain stable wage growth despite elevated demand. And the company has reduced reliance on contract labor, to just 2.1% of total salaries and wages.
“We’re very disciplined about that, and I think everyone has seen the impact of that,” Park said.
