Dive Brief:
- Tenet Healthcare raised its 2026 earnings and revenue guidance after weathering turmoil on the Affordable Care Act exchanges that has bedeviled other for-profit hospital operators in the second quarter.
- The health system now expects to bring in between $4.8 billion and $5 billion in adjusted earnings before interest, taxes and other adjustments this year, compared with its previous outlook of $4.5 billion to $4.8 billion.
- Declining admissions from ACA patients did lower Tenet’s revenue by $65 million in the quarter, but growth and cost containment initiatives helped boost the operator’s performance overall, executives said on an earnings call on Friday. “We are optimistic about the rest of the year,” CEO Saum Sutaria said.
Dive Insight:
Hospital operators are feeling increased pressure from tumult on the ACA marketplaces, after more generous financial assistance for the health plans lapsed at the end of last year.
The expiration of the enhanced premium tax credits has caused costs to spike for enrollees, pushing many to drop their coverage — a challenge for providers, given the rising rate of uninsured Americans is lowering revenue and increasing uncompensated care.
Last week, Community Health Systems reported second-quarter results below internal expectations as a result of the trend, while HCA Healthcare said the coverage volatility dug into its earnings more than planned.
But Tenet appears to have managed those financial challenges so far. The system almost tripled its profit in the second quarter, posting net income of $826 million — up from $288 million the same time last year — on revenue of $5.6 billion.
Adjusted earnings for Tenet’s hospital segment spiked by more than 22% on higher commercial patient revenue and increases in Medicaid state supplemental payments. However, that improvement was offset by lower ACA admissions, as most patients formerly covered by the exchanges appear to be going uninsured, Tenet said.
“We are roughly seeing a pretty consistent conversion from exchange patient volume into uninsured on a pretty much one to one basis,” CFO Sun Park said during the earnings call.
Revenue from ACA marketplace admissions declined about 17% in the second quarter, while ACA volume was down around 13.5%, Park said. The revenue hit was particularly severe in states like Florida, Arizona, Michigan, South Carolina and Texas, Sutaria added.
But cost containment strategies — like contract renegotiations for purchased services, length of stay management, and artificial intelligence adoption — have helped Tenet improve margins and weather ACA headwinds, Sutaria said.
Meanwhile, Tenet’s ambulatory care segment — United Surgical Partners International, which includes more than 500 surgery centers and 26 surgical hospitals in 37 states — outperformed the company’s expectations.
The unit’s adjusted earnings grew by about 9% in the second quarter, driven by increased revenue from patient services, cost management initiatives and contributions from acquisitions, the health system said.
M&A will continue to play a significant role at USPI. The company expects to exceed $300 million in M&A spend this year, based on previous ambulatory surgical acquisitions and “the robust pipeline of deals that we see ahead,” Sutaria said.
Tenet has already inked deals to purchase seven ambulatory surgical centers this year, the health system said in April.
