Tenet swings to profit, but execs guarded on a post-pandemic recovery

Dive Brief:

  • Despite a volatile year for the industry, Tenet was able to swing back to black in both the fourth quarter of 2020 and the full year by posting profits of $414 million and $399 million, respectively. Those amounts include provider relief funds allocated by Congress.
  • But as coronavirus vaccines provide hope for a return to normal, Tenet executives were cautious about their volume expectations for the year, eliciting questions from analysts during a Wednesday call about whether the forecast is too conservative.
  • Volumes in the quarter returned to near normal, particularly for outpatient surgeries, but ER visits continue to lag farther behind, according to financial results released after the market closed Tuesday.

Dive Insight:

Tenet weathered last year’s frequent fluctuation in patient volumes, but its executives remain guarded about recovery from the COVID-19 crisis being forthcoming. They were more bullish, however, on prospects for outpatient business lines as the pandemic seems likely to accelerate movement of care away from inpatient settings.

Admissions remained below 2019 levels due to patient reluctance to seek care amid the COVID-19 pandemic, though acuity remains strong, CEO Ron Rittenmeyer said on Wednesday’s call.

Hospital admissions overall in the fourth quarter hovered at 89% of pre-pandemic levels with outpatient visits at 85%, emergency room visits at 76% and hospital surgeries at 90%.

Tenet expects the volume of higher acuity patients to dwindle throughout the year, lowering revenue per adjusted admission, though new virus variants could hamper a linear recovery in 2021, executives warned.

And the company does not expect volumes to return to normal in 2021. Its forecast calls for inpatient admissions to be 90% to 95% of 2019 volumes and outpatients visits to be between 85% and 90% of that year’s levels.

The forecast appeared to some as too conservative and generated questions from Wall Street analysts about what was influencing calculations from the C-suite.

There’s still a range of uncertainty even with though vaccines bring new hope to curb cases, executives said. Still, they’re uncertain how COVID-19 will evolve throughout the year.

Tenet did provide color on what might change the outlook. If schools start to open up and children resume sports, then categories like the ER that have weathered the most decline in demand will start to go back up. “That’ll make a big difference,” COO Saum Sutaria said.

The company’s cost-cutting efforts could help weather uncertainties. Jefferies analysts said in a note Tuesday that Tenet management’s “impressive cost control for the quarter is worth mentioning.”

In Tenet’s hospital segment, net operating revenues excluding grant income was $4.07 billion in the fourth quarter, growing slightly from $3.98 billion during the same quarter a year prior.

Its ambulatory segment posted net operating revenues of $649 million in the fourth quarter, also a slight bump from prior-year levels.

Tenet said that reflects higher patient acuity and new service line growth as well as the impact of revenues associated with its acquisition of SurgCenter Development, which was completed in December.

That $1.1 billion cash deal grew the company’s ambulatory surgery center footprint to five times larger, by the number of facilities, than its hospital portfolio, and its ambulatory earnings will account for nearly half of the company’s overall earnings next year, executives said recently.

That’s a significant leap from about six years ago when ambulatory represented just 4% of the company’s earnings.