Tenet Healthcare: Volumes recovery unthreatened by resurging COVID-19

Tenet Healthcare's sign outside its headquarters
Compared to the second quarter of 2020, Tenet's hospital admissions, outpatient visits and emergency room visits were up 12.7%, 70.6% and 35%, respectively. Executives say that an uptick in COVID-19 cases is unlikely to reverse that momentum. (Tenet Healthcare)

Tenet Healthcare executives shrugged off the threat of rising COVID-19 cases after another quarter of swelling profits, revenues and volumes led the for-profit system to raise its guidance for the remainder of 2021.

“The second quarter and the first half of 2021 have been better than expected on many fronts,” CEO and Executive Chairman Ron Rittenmeyer said during a Thursday morning investor call.

“Clearly the variants coupled with the unvaccinated individuals has resulted in an uptick in certain parts of the country. Our COVID inpatient numbers remain low—roughly 4% of our total cases as of now—and while we’ve seen increases in select markets, given our experience, we’re really able to manage through this like we did when we were hit with other waves earlier last year. We have sufficient [personal protective equipment] on hand, we have sufficient capacity across every market and facility and we remain vigilant of any changes that might occur,” he said.

Tenet reported $120 million in net income from continuing operations for the second quarter of 2021 ending on June 30—a 36% increase over the $88 million reported in the same quarter of 2020 and a 23% jump over the $97 million reported in the first quarter of 2021.

The company noted that its profits include $24 million in pretax COVID-19 stimulus funding during the most recent quarter. It had received $523 million in pretax stimulus grant income during the same quarter last year.

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Overall net operating revenues for the latest quarter landed just shy of $5 billion. This was a roughly 36% increase over last year’s $3.6 billion and about 3% more than the almost $4.8 billion reported in 2021’s first quarter.

Net operating revenues for the company’s hospital segment were just shy of $4.1 billion for the quarter, versus almost $3.1 billion during the second quarter of 2020 and $3.9 billion in the first quarter of 2021. Ambulatory service revenues hit $664 million, up again from last year’s $368 million and the first quarter of 2021’s $646 million.   

Hospital admissions were up 13.7% compared to the same period during the prior year and, year-to-date, are just a hair higher than last year at a 0.1% increase.

This is a marked turnaround from the volumes hit Tenet suffered during the second quarter of 2020, when admissions dropped 20.3% compared to the year prior.

Tenet also reported year-over-year volume gains for its outpatient visits (70.6%), emergency room visits (35%), hospital surgeries (37%) and same-facility system-wide surgical cases for its ambulatory surgery business (68.2%).

“We are delivering a much stronger growth trajectory on the hospital side in terms of admissions and outpatient visits, ER volumes and surgeries,” Rittenmeyer said. “In particular, the higher acuity work that we have been focused on with general surgery, cardiovascular, ortho, neuro, etc., have been steadily progressing in key markets across the country.”

While the rebound in volumes has steadily increased across Tenet’s entire portfolio, some regions are rebounding from COVID-19 disruptions at a faster pace than others, the CEO said. Tenet doesn’t put out volume or earnings data for specific markets, but Rittenmeyer advised investors to consider the lockdowns and case counts of the surrounding communities for a rough idea of their progress.

“If you think about the portfolio and the markets that have opened up more quickly, you can safely assume that our performance is above average there,” he said. “And in the states that have been slower, have had more of a prolonged lockdown or have had, in some cases, more difficulties with vaccination in urban areas and things like that, they’re probably a little behind the average.”

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Rittenmeyer went on to say that the month-to-month gains in patient volumes and the numbers from Tenet’s highest performing markets has the company “very confident” that its business will exceed 2019’s earnings once COVID-19 has run its course. He also noted that the company has not seen any demand for procedure cancelations from patients or physicians related to rising case counts.

Dallas-based Tenet Healthcare currently operates 65 hospitals. It employs 108,000 people across its hospitals, more than 450 other healthcare facilities and Conifer Health Solutions, its revenue cycle management and value-based care services group.

Last month Tenet announced plans to sell off five of its hospitals to Steward Health Care for $1.1 billion, a deal set to close in the third quarter of 2021. In April it wrapped up the sale of its urgent care platform to FastMed for $80 million.

Daniel Cancelmi, Tenet’s chief financial officer, noted that proceeds from the hospital divesture could be used to pay off some of the system’s debt or to secure potential growth opportunities across higher acuity service lines.

“Reinvesting in the company is our biggest objective at this point,” he said.

Looking ahead, Tenet has upped its third-quarter and full-year financial guidance for shareholders.

For the former, the company expects net operating revenues to land between $4.6 billion and $4.8 billion, which takes into account lost revenue from the divestiture of its five Florida hospitals. Income is expected to fall between $335 million and $375 million.

For the full year, Tenet is anticipating its net operating revenues to run somewhere between $19.25 billion and $19.65 billion, while net income from continuing operations is thought to land within the $681 million and $781 million range.