Dive Brief:
- Tenet Healthcare bumped up its 2026 earnings guidance after its strategy to prioritize high-acuity surgeries helped it weather a decline in procedure volumes during the third quarter.
- CEO Saum Sutaria acknowledged on a Thursday call with investors that the surgical market was “not gangbusters right now” but that Tenet’s focus on bringing in more complex, specialized surgeries was critical to weathering financial headwinds, including a rising uninsured rate.
- Tenet now expects full-year net income between $2.97 billion to $3.08 billion on operating revenues of $22.1 billion to $22.5 billion.
Dive Insight:
Other for-profit hospital chains have called out declining surgeries in the third quarter, driven by patients forgoing procedures in both inpatient and outpatient settings due to cost. The decrease is dinging hospital operators’ finances, who increasingly rely on the lucrative procedures to pad their earnings results.
Tenet also saw a decline in surgeries in the third quarter. Surgeries in its outpatient ambulatory and hospital units declined 1.5% and 1.1% from the prior year, respectively.
But while other operators took an earnings hit from the declines, Tenet grew earnings and margins in both its hospital and ambulatory units.
Executives said this was due to Tenet’s long-term strategy of bringing in more high-acuity procedures — like joint replacements, advanced spinal fusions and robotic-assisted urological procedures — which can bring in enough money to help the health system weather other headwinds.
United Surgical Partners, Tenet’s ambulatory surgery arm, has been pivotal to that strategy. The unit, which Tenet acquired in 2022, is the largest ambulatory network in the country with 535 ASCs and 25 surgical hospitals across 37 states.
In the third quarter, USPI performed 12.8% more total joint replacements than the prior year, according to CEO Saum Sutaria. The high-acuity focus helped the unit grow adjusted earnings before interest, taxes, depreciation and amortization — a common measure of operating profitability — by 9.1% in the quarter to $537 million.
The health system will continue to lean on capturing higher-acuity cases, like more orthopedic surgeries and cardiac care procedures, while looking to grow its volumes, executives said on the call. These will be “important drivers” for Tenet’s financial performance over the next couple of years, especially as the healthcare system at large shifts care more to outpatient settings, according to Sutaria.
Analysts from TD Cowen said in a note Tenet’s underlying results were “solid and slightly ahead of” their expectations, especially in a “challenging fundamental backdrop for hospitals.”
For-profit health systems, especially those that skew more inpatient, have been reporting significant losses stemming from the expiration of enhanced premium tax credits on the Affordable Care Act exchanges. Without these premium subsidies, more people are forgoing coverage, causing patients to defer care or show up at facilities without insurance.
Outpatient settings haven't been dinged as badly by the growing uninsured population, since many people without coverage don't seek routine care or undergo expensive elective procedures, like joint replacements. However, this can leave hospitals with more uncompensated care as they receive sicker patients.
The health system’s exchange admissions and revenues both fell by 18% year over year, representing 5.5% of net operating revenues, according to CFO Sun Park. Tenet also saw an uptick in unpaid admissions across inpatient and outpatient visits in Q3.
Still, Sutaria said the impact of the subsidy expiry was stabilizing in the third quarter compared to earlier this year. Tenet did not disclose how much it lost from the exchanges in the quarter. Previously, the operator said it expected to lose $250 million in earnings this year from the trend.
A one-time benefit from the termination of CommonSpirit's revenue cycle management contract also boosted Tenet's Q3 performance. The company announced early this year that it regained full ownership of its revenue cycle subsidiary, Conifer Health, from CommonSpirit, which agreed to pay Tenet $1.9 billion over three years to get out of its services contract and insource its own RCM functions.
Getting ownership of Conifer back helped push up its full-year guidance. Additionally, the transition timeline was pulled forward by two months, with a new completion date of Oct. 30.
