Though it opted to stick with annual guidance numbers given in February, Tenet Healthcare’s “outstanding” first-quarter performance has the company pushing ahead on growth initiatives in the face of financial headwinds and policy uncertainties.
Tuesday morning, the hospital and ambulatory surgical center operator shared a $406 million net income attributable to the company ($4.27 per diluted share) for the first three months of the year. Net operating revenues decreased year over year from $5.4 billion to $5.2 billion, largely reflecting hospital divestitures during the prior year.
Its adjusted EBITDA of $1.16 billion was up 14% over the same period a year prior and “well above the high end of our guidance range,” Chief Financial Officer Sun Park said Tuesday.
Tenet CEO Saum Sutaria, M.D., told analysts that the earnings growth stems from divesting low-margin facilities and recent years’ focus on operating discipline. It’s set the stage for Tenet to continue focusing on labor structure and supply standardization, to increase its operating leverage and to build out its portfolio of well-performing assets.
“That’s why our priorities right now are still, in this [uncertain] environment, to continue to build and grow the business, rather than any kind of retreat,” he said during the quarterly earnings call.
Within the company’s hospital business unit, net operating revenues declined 7.9% year over year, again reflecting the divestitures. Offsetting that in part was a 4.4% rise in same-hospital inpatient admissions, “continued acuity strength” and 35% admissions volume growth from the Affordable Care Act (ACA) exchanges, executives said.
From an efficiency perspective, the hospital business also saw a 2.8% rise in revenue per adjusted admissions; strong payer mix; and a salary, wages and benefits line that declined substantially from 43.2% of net revenues to 40.6% of net revenues—which executives attributed to continued reductions in contract labor reliance, a settling labor market and internal programs to boost recruitment and retention.
The result, when excluding the divested hospitals, was a 23% year-over-year increase in adjusted EBITDA within the hospitals segment.
“We’ve been able to accommodate volume without adding a lot of contract labor where we’ve been expanding capacity, our recruiting of staff and nursing has been good, our retention rates have improved,” Sutaria said. “We put together three or four good things … in the same quarter, and it ended up generating better results than we might have expected.”
Within the higher margin ASC business, where Tenet has been focusing much of its capital deployment, net operating revenues grew year over year from $1 billion to $1.2 billion, thanks to net revenue per case growth, the addition of 16 new centers and increased service lines. Same-facility systemwide net patient service revenue per case rose from 6.8% to 9.1% due to favorable case mix and payer mix as well as a rise in higher acuity volumes. Executives also highlighted a 12% rise in ASC total joint replacements.
Together, the ASC business’s adjusted EBITDA rose 15.7% to $456 million. With this in mind, Sutaria said the company continues to see “significant opportunity for M&A in the ambulatory space” and is planning to invest a baseline of $250 million annually toward dealmaking growth.
“In all, our first-quarter results were above our expectations, driven by fundamental outperformance, [and] continued strength in the same-store revenue growth due to customer demand, high acuity and effective cost management,” Sutaria said while noting it’s still too early in the year to adjust the 2025 guidance despite the overperformance.
“Importantly,” he continued, “we are not altering our business strategy because of healthcare policy uncertainty that the industry is currently facing. We will steadily execute on our growth strategies with consistent capital investments and continued demonstration of our strong operating capabilities. We see significant opportunity for growth, which we believe translates into attractive free cash flow generation that we can deploy across our discussed priorities to generate value for shareholders.”
The policies referenced by the CEO include heightened expenses due to tariffs, expiring enhanced subsidies for the ACA marketplace and federal Medicaid funding cuts that could transform state supplemental payments.
Sutaria and Park acknowledged that each could hit the company’s bottom line, but similar to their for-profit peers explained that it was too early to try to quantify the policy changes’ specific impacts. They reiterated that Tenet executives have been making the rounds in Washington, D.C., to try to influence upcoming policy and that some of these changes would be extremely unpopular among constituents.
On Medicaid, Sutaria reiterated earlier comments that Tenet’s ASC business is less exposed to cuts than the hospital segment. On tariffs, Sutaria noted that Tenet is an “anchor client” for healthcare group purchasing organization HealthTrust and that both sides lean on its purchasing clout.
With so much up in the air, Tenet is ready to make contingency plans if necessary but will, in the meantime, continue pursuing its operating goals and deploying capital, Sutaria said.
That means continued deleveraging of the company’s balance sheet to free up capital for deployment. And, alongside the aforementioned ASC purchases spending, Sutaria added that the company believes its “current valuation is disjointed relative to our growth prospects, strong operating capabilities and transformed portfolio of businesses,” and so plans to turn its cash flow toward share repurchases. In the first quarter, it bought back 2.6 million shares for $348 million.
As of early Tuesday afternoon, Tenet’s shares were trading 10% above open. That’s the warmest reception to first-quarter health system numbers released this past week by public for-profits like HCA Healthcare and Community Health Systems.
Tenet operated 49 acute care and specialty hospitals, 135 outpatient facilities, a network of employed physicians and a swelling ambulatory care segment with more than 500 ASCs and 25 surgical hospitals as of Dec. 31. It recorded $20.7 billion in net operating revenues and $3.2 billion in net income across 2024.