ASCs 'insulated' Tenet's bottom line as hospitals continue to battle high labor costs

Dallas-based United Surgical Partners International, Tenet Healthcare's surgery center business, has helped protect the company from the rising labor costs that continue to eat into the bottom line of many hospitals and health systems across the country.

Tenet is optimistic about the rest of the year after reporting positive financial results in the first quarter and is turning their attention back to growing the business after the COVID-19 spike in January has "diminished significantly," executives said May 10 at the Bank of America Securities Healthcare Conference.

"Our view is that the labor challenges are not really burgeoning," said CEO Saum Sutaria, MD. "Our ability to manage labor, productivity, length of stay, appropriate utilization of our capacity, given the revenue that's available out there, is something that we've been committed to throughout the year. We maybe have taken an approach that balances those items in a way that helped us manage our earnings in the last year and a half, and I think the first quarter was no different on that."

Across USPI, outpatient "contract labor costs are typically less than 10 percent" of similar expenditures in Tenet's acute care business, "so substantially lower of what we see in our hospitals," according to CFO Dan Cancelmi.

"When you look at our needs for that type of contract labor on a short-term basis or even a multi-month basis, particularly in our large USPI segment as we continue to acquire and integrate facilities, it's de minimis," Dr. Sutaria said.

Tenet executives added that they are bullish about the recovery that will occur in the outpatient environment and are also beginning to see some top-line growth within Conifer, the company's revenue cycle management business.

Between USPI and Conifer, "half the business is insulated," Dr. Sutaria said.

USPI reported $738 million in net operating revenue during the first quarter, a $92 million increase from the first quarter of 2021, and expects to see 12 percent growth in 2022 after acquiring interest in about 160 ASCs in the last year and a half, executives said in a February earnings call transcribed by Seeking Alpha.

Tenet sees USPI as a significant part of its future strategy. It aims to add more than 160 ASCs over the next three years while also allocating more capital to expand hospital growth opportunities, including higher-acuity service offerings.

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