Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Tenet Healthcare Corp (THC, Financial) reported net operating revenues of $5.1 billion for Q2 2024, exceeding expectations.
- Consolidated adjusted EBITDA grew by 12% year-over-year to $945 million, with an adjusted EBITDA margin of 18.5%.
- USPI segment delivered strong performance with $447 million in adjusted EBITDA, representing 21% growth over Q2 2023.
- Same-facility revenues for USPI grew by 7.1%, with orthopedic volumes showing significant strength.
- THC raised its full-year 2024 adjusted EBITDA guidance to a range of $3.825 billion to $3.975 billion, reflecting strong organic performance.
Negative Points
- Hospital segment's adjusted EBITDA grew by only 5.3%, which is lower compared to the USPI segment.
- Hospital outpatient surgical growth was down by 3%, indicating a potential shift or decline in this area.
- Contract labor expenses, although reduced, still pose a challenge in managing overall costs.
- The integration of newly acquired centers, while on track, may still present operational risks.
- Medicaid redetermination and payer mix shifts could introduce variability in future revenue streams.
Q & A Highlights
Q: As I think about the ASC revenue per revenue adjustment on the same-store side and looking at your adjustment as well in surgical case volume, how should we be thinking about that? Is that mostly acuity driven? And how do you think about the runway left to expand joint replacements, 23% growth this quarter?
A: On the net revenue per case, it's a combination of acuity and mix. As we build higher acuity activity into the ASC portfolio, both in standard service lines and newer segments like orthopedics, cardiac, urology, and robotics, we see increases. Orthopedics, in particular, is expected to be a significant growth vector over the next 5 to 7 years.
Q: Can you remind us how many states currently have supplemental payment programs? And what is the opportunity for states that might not have programs to introduce them or for existing states to enhance them?
A: Six of our current hospital markets participate in supplemental programs. There are discussions around potential expansions. For example, Michigan recently approved an enhancement to the HRA program, significantly impacting our economics in that market. We feel good about the sustainability of these programs.
Q: How did the hospital business perform relative to your expectations in the second quarter, excluding the $30 million unexpected payment? And what's driving the strong second-half performance?
A: Excluding the Texas payment, the second quarter was still strong and above expectations due to strong volumes, successful capacity expansion, and excellent cost control. We feel optimistic about the demand and our ability to service it efficiently, which is reflected in our guidance for the rest of the year.
Q: Can you quantify the capacity additions you are making? Is it contributing to growth now?
A: We haven't quantified it in the past as capacity openings are selective in markets. The capacity expansion undertaken from the first quarter has been effective, and we continue to make investments to support the back half of the year.
Q: What's a good number for steady-state ASC volume growth in the out years?
A: Our long-term algorithm for ASC organic growth volumes is 1% to 3%. The volumes can be lumpy year-to-year, but the fundamental tailwind of moving procedures to a lower-cost setting and better service environment provides consistent long-term growth.
Q: What percentage of revenues for both segments come from patients with exchange-based coverage? And how do margins compare to typical commercial or Medicare?
A: About 6.5% of hospital revenues come from exchange-based coverage. Margins are favorable compared to government-paid programs and are close to commercial rates, though slightly lower.
Q: How much of the $300 million raise in guidance is due to year-to-date performance versus increased expectations for the back half of the year? And where are we in managed care pricing discussions?
A: About $200 million of the raise is due to first-half performance, with $100 million projected for the second half. Managed care contract negotiations have normalized, with ongoing discussions about catching up from past inflation.
Q: There's a significant spread between inpatient surgical growth and hospital outpatient surgical growth. What's driving this?
A: Inpatient surgical growth reflects higher acuity and elective procedures, while hospital outpatient surgeries are impacted by the shift to freestanding settings. The mix shift and payer dynamics also play a role.
Q: Can you talk about the potential for urology to provide a multiyear tailwind as robotic procedures move to ASCs? And what about weaker areas like pain and ophthalmology?
A: Urology is in early stages of moving procedures to ASCs, driven by innovative urologists. Ophthalmology is strong due to recovery in utilization. Pain procedures are being diversified to include more invasive, higher-acuity procedures.
Q: How should we think about the potential margin impact of hospital capacity coming back online?
A: Additional capacity is brought online with the expectation of being margin accretive. Initial phases may use contract labor, but margins improve as permanent staff is recruited. We focus on ensuring incremental volume produces at least a contribution margin upfront.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
