As COVID-19 cases and hospitalizations fell from January’s omicron high, Tenet Healthcare executives told investors they were surprised at how slowly contract labor prices recovered during the year’s first three months.
COVID-19 cases made up about 12% of Tenet’s hospital admissions during the first quarter of 2022 versus about 7% during the year prior, the company shared during a Thursday morning investor call.
Case levels dropped off quickly, CEO Saum Sutaria, M.D., said, and in March Tenet saw less than 10% of the COVID-19 admissions it was fielding in January.
As such, the company was able to increase its high-acuity volumes during the late part of the quarter, with surgical volumes in March 20% than in January, for instance.
“By early February, we saw the COVID case trendline dropping and adjusted our operating platform to quickly match the supply of resources and demand for services,” Sutaria said. “We kept our focus on acuity and ensured convenient access to our emergency services for all those who needed it. We were very pleased with our performance on hospital-based surgeries.”
One lingering wrinkle of the early-year COVID spike has been persistently high contract labor costs, Sutaria noted.
Although Tenet managed to reduce premium pay by more than 20% from January to March, “we would have expected contract labor rates and the labor market to have normalized a bit more by the end of this quarter, relative to where we are today,” the executive said.
Sutaria speculated that the delay is the result of the length of contract labor agreements, which can often exceed 20 weeks. As those contracts begin to expire, the CEO said he expects contract labor prices to further relax and the full-time labor pool to strengthen as more workers return to standard positions.
“Our response to [persistently high labor costs], of course, is operating discipline, which we have demonstrated in this first quarter,” he said. “But I think until we see that materially improving, [we] keep our heads down, operate with the same discipline in Q2 and update the guidance coming out of the second quarter.”
Despite the early COVID road bumps and ongoing labor pressure, Tenet Healthcare kicked off its year with a $139 million profit for the first quarter.
The performance improves on the $97 million of net income the for-profit company notched this time last year, as well as the $94 million it had generated during the first quarter of 2020 when the COVID-19 pandemic was first picking up steam.
CEO Saum Sutaria, M.D., said in an accompanying statement that the company’s $888 million in adjusted EBITDA for the quarter was “above our expectations.” Tenet had seen $777 million in adjusted EBITDA during the prior year’s same quarter.
As a whole, the company logged net operating revenues and operating income of more than $4.7 billion and $648 million, respectively, during the first quarter of the year. This is down slightly from 2021’s nearly $4.8 billion net operating revenues but up from its $520 million operating income.
Within its hospital segment, Tenet reported a 1.4% year-over-year decrease in same-hospital adjusted admissions, which it attributed to the omicron surge. Outpatient visits, on the other hand, rose 1.4% year over year as emergency room visits grew by 13.9%.
Net operating revenues “prior to inter-segment eliminations” came to $3.8 billion for the quarter, down almost $150 million from the year before. However, the hospital segment improved its adjusted EBITDA margin from 10.4% to 13.4% year over year.
Sutaria said he was pleased with the "operational discipline" demonstrated across Tenet’s non-hospital business units.
For United Surgical Partners International, its ambulatory surgery subsidiary, the CEO highlighted “impressive case growth.”
The segment claimed net operating revenues of $738 million during the quarter, up from $646 million at the same time last year, and an 8% increase in same-facility system-wide surgical case volume. It also saw a 38.2% adjusted EBITDA margin for the quarter, down slightly from last year’s 39.8%.
As for Conifer, the revenue cycle management and solutions business Tenet recently decided to keep in-house, net operating revenues grew year over year from $310 million to $324 million. Its adjusted EBITDA margin also saw a bump from last year, rising from 27.7% to 28.4% “primarily due to the impact of 4.5% revenue growth and continued effective cost management,” the company wrote.
Of note, Tenet has early retired $824 million in debts so far this year, which it said should provide an annual cash interest savings of $61 million. As a result, Tenet’s cash has declined to just over $1.4 billion as of March 31.