Tenet Closes On Another Successful Quarter, Highlights Impact Of Growth Strategies

The final three months of 2014 marked the Tenet Healthcare Corporation’s best quarterly earnings period in a decade before interest, taxes, depreciation, and amortization, the company announced this week. Admissions and volumes continued to sail upward primarily as a result of its aggressive growth strategy, propelled further by a population newly insured by the Affordable Care Act, CEO Trevor Fetter said.

Tenet announced results for the final three-month period of last year—which ended on Dec. 31—Monday afternoon and spoke with investors during an earnings call Tuesday. Much of it followed a line similar to what it’s been reporting since the year began: year-over-year adjusted admissions are up (4.5 percent), outpatient visits increased (9.6 percent), the amount of surgeries performed jumped (7.5 percent), and emergency department visits again saw a boost (7.2 percent).

Fetter cautions not to associate those gains directly with the Affordable Care Act. And, as we’ve reported again and again, the company under him has been aggressive in its mergers and acquisitions. For instance, its $4.3 billion acquisition of Nashville’s Vanguard Health Systems allegedly doubled revenues at its Texas hospitals just five months after it closed.

“Look at this growth; all in, this is a 10-year record. Strip out the part that comes from the newly insured people in the Affordable Care Act, it’s a five-year record,” Fetter said in an interview. “It’s still incredibly strong. That’s the point.”

In the fourth quarter, the company reported adjusted earnings of $646 million EBITDA. In the same quarter in 2013, Tenet posted $444 million—a 45.5 percent increase, amounting to about $202 million. Its net operating revenue for the fourth quarter was $4.468 billion, a 15 percent hike from the $3.885 billion in revenue it had during the fourth quarter of 2013.

For the full year, Tenet’s revenue ballooned from $11.1 billion in 2013 to $16.6 billion in 2014. Although, it’s important to note that the Vanguard acquisition occurred in October 2013; the true test will be comparing 2015 to 2014.

Nevertheless, Tenet maintains it’s on solid footing going forward. It associates 70 percent of its boost in volumes to “core growth,” meaning patients who were insured prior to the ACA.

“Internally, we don’t make those distinctions,” Fetter said. “These are all patients and they’re all coming to our hospitals in record numbers.”

Its charity and uncompensated care also declined. Throughout the company’s 14-state footprint, uninsured plus charity admissions dropped by 3,109 admissions, or 21.9 percent. Medicaid admissions increased by 4,555 admissions, about 9 percent. That was more pronounced in the five states that expanded Medicaid: uninsured plus charity declined by 2,547, or 62.4 percent. Medicaid admissions, meanwhile, spiked by 20.15 percent, or 4,355.

So: That tells you there’s a significant contingent of patients who are becoming insured and no longer receiving uncompensated or charity care. And according to federal data, close to 90 percent of all non-elderly purchasers of insurance through the Affordable Care Act qualify for a subsidy. Next week, the Supreme Court hears King v. Burwell. If the SCOTUS sides with King, the decision would make these federal subsidies unconstitutional in states that did not expand Medicaid.

According to a recent Urban Institute study, about 8.2 million Americans would no longer be able to afford their coverage. Should the Supreme Court rule that way, is Tenet nervous about how this will affect the amount of uncompensated care they provide?

“Talking to legal experts … it is unlikely the Supreme Court would issue an order mandating the subsidies stop immediately,” said Dan Waldmann, the company’s senior vice president for public affairs. “The IRS will have discretion of how they implement it, so I think there’s a lot of opportunity to create workarounds in the event there is an adverse (decision.)”

Tenet currently operates 80 hospitals in 14 states. It also grew its outpatient facilities by 27 to 210 this year. Ninety-two percent of its outpatient growth is considered organic.

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