Dive summary:
- Tenet Healthcare raised its full-year financial forecast on Tuesday after the release third quarter results that showed year-over-year growth in revenue and adjusted earnings.
- It is the second consecutive quarter that Tenet has raised its financial forecast due to exceeding the company’s expectations. The hospital operator now expects between $21.2 billion and $21.4 billion in revenue by 2025.
- Tenet is also increasing its capital spending budget for the year by $150 million, for a total of between $875 million and $975 million. CEO Saum Sutaria told investors during a call Tuesday morning that the funds would be used for organic growth of its hospital division and to fund investments in high-acuity service lines such as cardiac care, critical care and high-end imaging.
Diving information:
Tenet reported $5.3 billion in net operating income for the third quarter, beating Wall Street expectations and the operator’s prior year performance by 3.2%.
The health system attributed its earnings results to broad same-store revenue growth, continued operational efficiency initiatives and dividends from its high-acuity service line strategy, which develops offerings for complex patients requiring more specialized care.
The operator’s acute hospital portfolio generated $4 billion in net revenue during the quarter, benefiting from a $38 million increase in Medicaid supplemental payment revenue from prior years. Tenet’s outpatient business, United Surgical Partners International, raised $1.3 billion.
Both segments experienced increasing volumes during the quarter. Acute care hospital volumes grew modestly, and adjusted same-store admissions increased 1.5% year over year. The CEO said he expects to see continued demand for Tenet’s high acuity offerings, which prompted Tenet’s decision to increase its capital spending budget.
“We felt it was a good time, given the demand we continued to see during the third quarter, to go ahead and make those investments and increase our guidance,” Sutaria said.
Surgical volumes at USPI facilities also increased 2.1% year over year.
Tenet’s 2025 guidance predicts that USPI will increase volumes by more than 8% year over year, a slowdown from previous years, when USPI was growing between 10 and 20 percent. Still, Sutaria said he still expects strong demand for services and hinted at possible acquisition opportunities in the fourth quarter.
Executives acknowledged they were dealing with uncertainty due to the government shutdown in Washington, although Sutaria seemed optimistic that lawmakers would reach an agreement on health care policy.
Sutaria said Tenet, like many of his peers, is waiting to hear more about how lawmakers will resolve negotiations over the enhanced Affordable Care Act. subsidies, which will expire without congressional action.
Democrats and Republicans have been stuck for weeks in an impasse over the fate of the subsidies, which were first implemented during the COVID-19 pandemic. Without an extension, millions of people are expected to be left uninsured as premiums rise and providers are expected to lose billions in revenue.
“Much of what we are hearing is that it may take time, but a compromise will be achieved thanks to our intelligence coming from Washington,” Sutaria said. “We’re waiting patiently to see what happens there.”
Tenet would be exposed to pressures from the ACA: During the third quarter, 8.4% of Tenet’s total hospital admissions and 7% of its total consolidated revenue came from exchange patients, according to CFO Sun Park.
However, USPI is generally less exposed to the exchanges and Medicaid (which faces $1 billion in cuts) than the acute care hospital division, Sutaria said.
