Dive Brief:
Tenet Healthcare plans to continue its bullish acquisition strategy this year, even in the face of regulatory upheaval in Washington, executives said on a Tuesday morning call with investors.
The hospital operator has been focused on growing its ambulatory care business through M&A and plans to spend about $250 million on acquisitions each year moving forward. Tenet is especially interested in nabbing facilities that can process high-acuity cases.
The hospital operator also posted first-quarter earnings results that beat both Wall Street and the company’s expectations on earnings before interest, taxes, depreciation and amortization. Tenet grew EBITDA by 13.6% year over year.
Dive Insight:
Executives attributed Tenet’s performance to growing demand for services across hospital and ambulatory care, as well as careful cost controls.
Tenet reported a net income of $406 million, down from last year’s $2.2 billion. Net operating revenues declined year over year from $5.4 billion to $5.2 billion. Tenet said the drops in income and operating revenue were due to its hospital divestitures in the first quarter of last year, including three hospitals in South Carolina and six hospitals in California.
Ambulatory services surpassed analysts’ expectations for revenue this quarter, according to research notes from TD Cowen and Leerink. Net revenue per case was up 9.1% year over year while case volumes fell by 2.1%, reflecting Tenet’s efforts to capture higher acuity services, said CFO Sun Park.
CEO Saum Sutaria again reiterated Tenet’s focus on ambulatory surgery center M&A on Tuesday, noting Tenet had added six new centers to its portfolio during the first quarter, including a strategic partnership with orthopedic and urology surgery provider Choice Care Surgery Center in Midland, Texas.
Across the health system, Tenet has earmarked between $700 million and $800 million for capital expenditures this year.
The hospital business also performed well in the first quarter, with same-hospital admissions up 4.4% year over year and revenue per adjusted admission up 2.8%.
Executives were pleased with cost containment in the business unit, noting salary, wage and benefit spend had improved on a 260-point basis compared with the prior year and contract labor spend continued to fall.
Sutaria attributed the success to last year’s capacity management, recruitment and retention initiatives paying off.
“We put together three or four good things together in the same quarter, and it ended up generating better results than we might have expected,” the CEO said.
Still, like its peers, Tenet opted to reaffirm its revenue and EBITDA guidance for 2025 rather than raise it. “We’re early in the year,” Sutaria told investors. “And while we are very pleased with both our fundamental outperformance and the continued demand for our services… we’ll address our full-year expectations in the future.”
Of the major for-profit health systems to report earnings this quarter, Tenet spent the least amount of time during its earnings call discussing potential policy changes in Washington, including the impact of tariffs or cuts to Medicaid.
For now, the CEO said whisperings of what could come in Washington aren’t dictating Tenet’s strategy.
“Our priorities right now are still, in this environment, to continue to build and grow the business, rather than any kind of retreat,” Sutaria said.
Still, Sutaria said Tenet will ramp up “contingency planning” if it looks like the government will make significant changes to Medicaid, similar to how the hospital operator tackled the COVID-19 pandemic.
Currently, contingency planning isn’t Tenet’s top priority. More pressing issues include building a strong utilization environment, controlling costs and engaging in direct conversations with leaders in Washington about proposed policy changes.
“If there is some shock that comes out of Washington, obviously, [contingency planning] may move up in terms of our list. But it is not there right now,” Sutaria said.
