“We’ve taken the opportunity over the past few years to create resiliency in USPI by making sure that the ambulatory surgery centers as a part of USPI are on freestanding rates,” Tenet Executive Vice President and CFO Sun Park said during the earnings call. “The Medicaid exposure is de minimus in that business, and that’s very helpful from that perspective.”
This confidence is bolstered by the fact that nearly half of Tenet’s $3.99 billion EBITDA in 2024 comes from USPI — a segment largely insulated from Medicaid-related risks. USPI’s EBIDTA climbed 20% in 2024 to $1.8 billion, according to the company’s earnings report.
“It’s very different than it might have looked five or six years ago,” Mr. Park said. “So we feel confident about the valuation opportunities for the company.”
Tenet has reshaped its business model in recent years to focus on USPI, a pivot aimed at boosting profitability, enhancing operational efficiency and meeting the growing demand for outpatient procedures. This shift has resulted in significant growth for USPI and financial gains for the health system.
In 2024, Tenet sold 14 hospitals across California, South Carolina, and Alabama for more than $4.8 billion. Operating cash flows for the year included $855 million in income tax payments related to gains from these sales.
USPI now holds an 8.1% share of the ASC market, with interests in 518 ASCs (375 consolidated) and 25 surgical hospitals (seven consolidated) across 37 states.
Mr. Park highlighted two primary factors supporting USPI’s success amid economic uncertainties: disciplined operations and a deep understanding of business economics. The company closely monitors its service lines and markets to swiftly adjust to changes in supplemental payments and other reimbursement shifts.
Additionally, USPI’s focus on high-acuity procedures has strengthened its position. The broader healthcare industry trend of shifting procedures to lower-cost outpatient settings has further benefited the company.
“We continue to focus on growing higher acuity, which drives net revenue per case, it also drives value in the system from an overall lowering the cost of care standpoint, ” CEO Saum Sutaria, MD, said during a third quarter earnings call.
As part of this shift, USPI is exploring opportunities to “migrate certain lower-acuity, higher-volume types of activities out of the ASCs,” Dr. Sutaria added.
While leaders said Tenet remains insulated, health system leaders are closely monitoring potential Medicare and Medicaid reimbursement changes under the new administration. House Republicans have proposed a budget blueprint directing the Energy and Commerce Committee to cut $880 billion in costs over the next decade.
Medicare and Medicaid reimbursement constitute a significant portion of many health systems’ revenue cycles, and any cuts could have widespread financial implications.
“The biggest thing we’re following now is reimbursement and changes in Washington. Medicare and Medicaid reimbursement is such a big part of our business,” Matthew Arsenault, CFO of Coral Gables, Fla.-based Baptist Health South Florida, said during an upcoming episode of the Becker’s CFO and Revenue Cycle Podcast. “We’re pretty much in wait-and-see mode, but it could really change how we operate. We’re closely monitoring what is going to make sure we’re prepared for any changes.”
During the Feb. 12 earnings call, Dr. Sutaria emphasized that states will play a crucial role in advocating for continued Medicaid funding and stressed the importance of financial discipline.
“[Medicaid] is not some program that’s generating incredible windfalls for health systems,” Dr. Sutaria said. “The reimbursement is still below the cost of that care and I think that’s going to be an important balancing factor. The states will play an important role in this.”
