‘In many ways more challenging:’ Tenet loses $197M in COVID-19-slammed Q3

Dive Brief:

  • Spiking COVID-19 caseloads in many of its markets, along with higher operating expenses and lower admissions across the board drove Tenet to a net loss from operations of $197 million in the third quarter.
  • That’s slightly better than losses of $227 million the same time last year. But “the third quarter of 2020 was in many ways more challenging than the second,” CEO Ron Rittenmeyer said in a Tuesday statement on the for-profit operator’s results. Inpatients with COVID-19 surged in the quarter, up 64% sequentially in Tenet’s markets in late July and August to about 15,000 patients.
  • Revenue of $4.56 billion was down slightly year over year, but beat Wall Street expectations. Strong results in Tenet’s ambulatory and Conifer segment offset a worse-than-expected hospital segment performance, analysts said.

Dive Insight:

Some of the results from 65-hospital Tenet, including an improvement in volumes compared to the second quarter, declining admissions in August and September compared to July “warrant a wait-and-see stance,” Jefferies analyst Brian Tanquilut said in a Wednesday note.

The Dallas-based operator’s hospital segment reported operating revenue of $3.8 billion, down 1.2% from the third quarter last year as patient volume fell, partially offset by higher patient acuity and negotiated rate increases with payers. Despite the rise in COVID-19 cases, Tenet did not halt elective procedures or treatments.

Same-hospital admissions and same-hospital adjusted admissions including outpatient services fell 11.4% and 15.9%, respectively.

ER visits were 77% of 2019 levels in June, rose to 80% in July before dropping again to 76% and 74% in August and September, respectively. Outpatient visits were similar, swelling from 77% of 2019 volume in June to 86% in July, before dropping again to 82% and 83% in August and September.

Meanwhile, hospital surgeries oscillated to 90% of levels from the same time last year in June, down to 87% and 88% in July and August, before hopping back up to 92% in September.

In a bright spot for the system, net patient service revenue per adjusted admission spiked almost 17% year over year, mostly due to higher acuity cases and a stronger commercial mix.

Utilization fluctuating throughout the quarter is a sign a recovery may have leveled off. Combining stalled recovery with the increase in expenses contributed to margin compression for Tenet that could continue without a significant increase in volume, Tanquilut said.

Tenet’s hospital operating expenses increased $3 million in the third quarter due to higher staffing costs in markets seeing a higher caseload of COVID-19 patients and higher supply costs for personal protective equipment.

Congressional aid was a key lifeline, but a Trump administration methodology tweak for how hospitals financially report grants from the Coronavirus Aid, Relief, and Economic Security Act caught Tenet by surprise in the quarter, executives said on a Wednesday morning call with investors.

As of Monday, Tenet has received about $890 million in grants from congressional COVID-19 relief aid. Tenet recognized about $453 million as income through the third quarter, but had to reevaluate the grants based on the updated guidance, “which was not helpful to providers,” the system said in an earnings slide deck.

Tenet had to reverse about $53 million after tax in grant income that it had recognized in the second quarter this year.

“This will place additional pressure on us and the recovery over time relative to the COVID cases, but we also believe we’ll continue to recover these CARES act stimulus funds, it’ll just be over a longer period of time,” Rittenmeyer said on the call.

Tenet has also received about $1.5 billion in advanced Medicare loans, which need to be paid back to CMS. The government extended the repayment timeline in October, pushing Tenet’s repayment period to September 2022, and instituting a lower interest rate of 4% if advances aren’t paid back by then, Tenet said.

Tenet’s United Surgical Partners International includes about 260 ambulatory surgery centers, 40 urgent care centers, 24 imaging centers and 25 surgical hospitals in 28 states. Higher acuity and growth in new service lines drove USPI to operating revenues of $565 million, up 8.2% compared to the third quarter of 2019.

However, on a year-to-date basis, operating revenues of $1.4 billion dropped almost 7% compared to 2019 due to COVID-19’s impact.

The surgical business makes up the majority of the ambulatory segment’s operating revenues. Same-facility surgical cases dropped almost 6%, while same-facility ambulatory cases lessened slightly by 0.3%.

And Conifer, Tenet’s revenue cycle management and value-based platforms business, reported net operating revenues of $325 million, down 3.3% compared to the same period last year. Revenue from non-Tenet clients dropped 3.6%.

Tenet is still working to spin Conifer off, following disappointing finances in 2017, Rittenmeyer said.

As of Monday, Tenet had about $3.3 billion of cash on hand and a $1.9 billion line of credit. The system is still not issuing 2020 guidance.

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