Tenet 'insulated' from COVID's pricey labor as most hospitals feel staffing squeeze

As health systems across the country bemoan the inflated costs of contract and premium labor, Tenet Healthcare leaders say their organization is largely protected from pricey clinical workforce challenges.

CEO Saum Sutaria, M.D., and Chief Financial Officer Dan Cancelmi said during a Tuesday session at the Bank of America Securities Healthcare Conference that contract labor typically comprised 2% to 3% of the for-profit’s consolidated salaries, wages and benefits, but that portion had ballooned to 6% to 7% during January’s omicron surge.

Those numbers will likely moderate in the coming months, but the company isn’t assuming they’ll return to those pre-pandemic levels after being blindsided by variant after variant, they said.

But while Tenet plans to continue leaning on analytics from previous waves as a guide to managing costs and capacity as needed, Sutaria said Tenet’s true ace in the sleeve has been its ongoing efforts outside of the hospitals space. These include United Surgical Partners International (USPI), its ambulatory surgery center (ASC) business, and Conifer, its recently retained revenue cycle management and solutions business.

“Probably the most important thing to note … is that just remember, half of our business between USPI and Conifer is largely insulated from the labor challenges that we are talking about right now that affect the hospitals,” Sutaria said during the session.

“When you look at our needs for that type of contract labor on a short-term basis or even a multi-month basis, particularly in our large USPI segment as we continue to acquire and integrate facilities, it’s de minimis. And so, we’re very bullish about the recovery that will occur there—plus [we’re] starting to see some top-line growth in our Conifer business,” he said.

Outpatient labor costs across USPI are “typically less than 10%” of similar labor spending across Tenet’s acute care hospital business, Cancelmi said. Additionally, while the pandemic has generally seen patients delaying or foregoing their lower acuity care needs, the executives said USPI has still seen solid business come in from its health system and physician partners.

“We’ve managed to provide [partner physicians] an outlet to perform surgeries that were hard to perform in hospitals that were struggling with labor at the same time,” Sutaria said. “We had 55-plus nonprofit health system partners that have struggled a little more in their hospital platform than we have in terms of operating room capacity and staffing. So, the ASCs have become a bit of a respite for those surgeons to bring those cases in.”

Tenet has been clear over the past couple of years that it sees USPI, and to a lesser extent Conifer, as high-margin areas of growth and a core part of its business plan.

The former saw its net operating revenues increase by $92 million year over year during the first quarter while same-facility systemwide surgical case volume grew 8%, Tenet announced in its latest earnings a few weeks ago. Sutaria also highlighted the untapped potential of bringing more shoulder surgeries out of the hospital and into USPI’s ASCs.

Still, Sutaria stressed that the growth upsides of Tenet’s higher-margin businesses don’t mean the company is ignoring its hospital business.

The CEO pointed to Tenet’s multiyear realignment in which large, catch-all hospitals outside of core markets are being phased out for leaner facilities that are primarily focused on high-acuity procedures.

“Unlike the Tenet of the past that might have taken inbounds in all kinds of markets that they looked at, every one of these is an extension from an existing leading market position within an X-mile radius, where there’s a large, growing commercial and Medicare population where we can extend the platform,” Sutaria said.

“The platform has changed to follow that strategy. Why is that relevant? It gives us more scale in what we do in our supply chain environment, and it’s highly relevant to whoever is covering lives in those markets. That helps continue the strategy of having contracts that can deliver synergies to both sides of the business,” he said.

The value of this “self-reinforcing” strategy as well as a continued focus on operational efficiencies will be key as Tenet contends with labor costs and broader inflationary pressures on the horizon, the executives said.

Cancelmi noted that Tenet “certainly took inflation into consideration” when “negotiating appropriate, fair reimbursement” under two major payer contracts recently closed by the company—a nationwide deal with Aetna and a state-level arrangement with Blue Cross of Texas.

However, Sutaria stressed that simply demanding higher rates from payers is a poor response to the challenging pandemic market.

“The concept that ‘hopefully short-term inflationary pressures in this area are going to be fully covered by any contract or Medicare’s IPPS rule’ is foolish,” Sutaria said in reference to a recent Wall Street Journal article reporting that Tenet and other major health systems were looking to increase prices by as much as 7.5% to 15%.

“We didn’t start down this path four or five years ago in restructuring the operations of Tenet because we believed that we were just going to get reimbursement. We take accountability for our own efficiency … it’s our view that we will continue to seek and identify and deliver efficiencies in the platform, because you know they’re there in healthcare services. … I don’t think we can rely on pure ‘top-line pricing’ to help us solve this problem.”