Tenet has ‘outstanding’ 2024, addresses policy changes in Washington
Health system leaders said Tenet is mostly insulated from proposed policy changes like Medicaid cuts due to its focus on ambulatory surgical centers.Dive Brief:
Tenet Healthcare brought in profits of $3.2 billion in 2024, up from $611 million in 2023, on strong same-store revenue, growth in high-acuity care and effective cost management strategies, health system executives said during an investor call Wednesday.
The earnings performance was stronger than expected based on Tenet’s full year guidance, which the company updated midway through the year.
Still, Tenet faced challenges during the fourth quarter and underperformed on operating revenue compared to Wall Street’s expectations. Analysts also pressed executives during the call about the health system’s plans to weather possible regulatory changes in Washington moving forward, including proposed cuts to the Medicaid program.
Dive Insight:
For the full year, Dallas-based Tenet reported $20.7 billion in net operating revenues and $4 billion in adjusted earnings before interest, taxes, depreciation and amortization — results CEO Saum Sutaria described as “outstanding” to investors.
The health system’s ambulatory surgery center division — United Surgical Partners International — did particularly well, according to the executive, generating $1.8 billion in adjusted EBITDA, a 17% growth compared to 2023.
However, the operator hit a bump during the fourth quarter, posting $5.1 billion in net operating revenues — roughly $300 million below the same period in 2023. Still, Tenet improved on income for the quarter.
Wednesday’s call once again focused on Tenet’s plans to deemphasize the health system’s hospital business in favor of expanding its ambulatory surgery center footprint. The health system sold 14 hospitals in 2024 and added 70 new ASCs, according to Sutaria.
In 2025, Tenet will invest $250 million toward mergers and acquisitions in the ambulatory space and plans to open 10 to 12 new facilities, said Sutaria.
Tenet may also pursue “key hospital growth opportunities,” CFO Sun Park said, like adding higher acuity services.
Multiple analysts questioned executives about how possible changes to the Medicaid program — such as cuts to reimbursement rates or eligibility requirements — could impact the health system’s bottom line.
Sutaria said changes to the Medicaid program would minimally impact USPI.
“So from a USPI perspective, this is all about an important tailwind of moving things into a lower cost setting in an expensive portion of the healthcare industry — which is surgical care — and doing so in a way where we’re constantly increasing the acuity of the work at USPI because it creates more value for the purchaser,” he told investors.
Sutaria acknowledged hospital service line revenue is more vulnerable to Medicaid changes. However, he isn’t ready to make big strategic moves off of speculation about what could happen in Washington.
“I’m not sure that right now taking a bunch of actions to restructure the business is the right thing to do,” Sutaria said.
Instead the CEO hopes Tenet will be successful in persuading politicians of the value of preserving Medicaid. He noted that the program provides healthcare access in “states with voters that really matter to this administration.”
Analysts were also concerned about increased calls for site-neutral payment policies, which would reimburse facilities the same amount for a service regardless of where they are performed.
“Our ASCs operate with freestanding ASC rates, which insulates that important part of our business from potential changes in site neutrality rules,” Sutaria said.
The system does not expect to see significant revenue losses related to proposed cuts to federal funding for medical research.
Tenet also released its 2025 outlook in the report, projecting net income between $1.04 billion and $1.12 billion and net operating revenues between $20.6 billion and $21 billion.
The company expects inpatient admissions in the hospital service line to rise between 2% and 3%, while USPI same-facility system-wide revenue will rise between 3% and 6%.
Analysts scrutinized the projections for USPI, with Joanna Gajuk from Bank of America asking why the top end of the range fell below the growth Tenet recorded in 2024.
Sutaria said the outlook reflected Tenet’s focus on shifting toward capturing higher acuity procedures in 2025.