Contract labor costs are starting to moderate for major hospital chain Tenet, which generated a $38 million profit in the second quarter despite a cyberattack's impact on admissions.
reported $38 million in net income for the second quarter of 2022, down from the
Tenet’s earnings report, released Thursday, showed the hospital giant generated $4.6 billion in net operating revenue for the second quarter compared with $4.9 billion for the same period in 2021. The $38 million in operating income was also down compared to the previous quarter’s profits of $130 million as a disruptive cyberattack impacted admissions.
“We demonstrated resilience in the face of a disruptive cyber attack and discipline through challenging market conditions,” said Tenet CEO Saum Sutaria, M.D., in a statement. “The ongoing diversification of Tenet driven by our capital efficient ambulatory expansion is a key differentiator that presents compelling opportunities for growth in earnings and free cash flows.”
Increases in contract labor have roiled the hospital industry since the onset of the COVID-19 pandemic, causing major increases in staffing expenses to hospital chains.
Tenet reported, however, that its contract labor costs are starting to moderate in the second quarter of the year. Its consolidated labor costs were 6.2%, down from 6.8% in the first quarter of the year.
"That is a positive sign and so when we think about the back half of the year gives us more optimism," said Dan Cancelmi, Tenet's chief financial officer, during an investor call.
But Tenet executives warned that contract rates may not reach pre-pandemic levels of 2 to 3% and last year contract labor costs were at 5%.
"I don’t know if there is a new norm. I feel there is pricing elasticity in that," said CEO Saum Sutaria on the investor call. "The traveling rates are higher now than they were pre-pandemic but the rates are still high."
In April, Tenet faced a major cyberattack that disrupted some of its acute care operations. While hospitals were able to continue to deliver patient care, Tenet suspended user access to some of its systems and initiated several security protocols to contain the attack.
Now, Tenet has fully restored its information technology systems but has estimated the attack led to a hit of $100 million in adjusted earnings before interest, taxes, depreciation and amortization, the company said in its release.
It posted net operating revenue of $3.6 billion for its hospital segment in the second quarter, down 11% from the $4 billion it generated in the same period in 2021. The reasons for the decline were primarily the sale of Tenet’s Miami-area hospitals in the third quarter of 2021 as well as the impact from the cyberattack.
The attack also contributed to a 0.2% year-over-year decline in same-hospital net patient service revenue per adjusted admission.
Tenet has filed a claim for the damages and has already received $5 million of insurance proceeds.
At the same time, COVID-19 claims for the quarter were well below the rates the hospital giant saw in the first quarter of the year.
“COVID admissions were 3% of total admissions in [quarter two] compared to 12% of total admissions in [quarter one],” the company said.
While the hospital giant’s hospital revenue was down, other segments of the business helped offset the losses. For example, the subsidiary Conifer, which offers revenue cycle and process management services to hospitals, saw a 4.4% increase in its revenues in the second quarter, generating $333 million in the quarter compared with $319 million in the second quarter of 2021.
Tenet’s ambulatory segment also produced net operating revenue of $771 million in the quarter, up 16% from the previous period in 2021.