Tenet portfolio 'transforms' amid USPI growth

Dallas-based Tenet Healthcare is accelerating its portfolio transformation towards a more value-based care enterprise with a leading specialty care platform, the company said in a proxy statement filed April 12 with the Securities and Exchange Commission.

The for-profit health system, which reported $2.5 billion in operating income on revenues of $20.5 billion in 2023, is focused on strategically reducing its debt and growing its hospital segment and ambulatory business, United Surgical Partners International.

"Tenet is entering a new era with a greater proportion of our performance coming from our highly efficient ambulatory surgical business and a reduced debt profile," CEO and Chair Saum Sutaria, MD, said during the company's fourth-quarter earnings call. "We will have significant financial and capital flexibility to increase shareholder value over the long-term."

USPI's net operating revenue increased 19% year over year to $3.9 billion in 2023. Tenet's hospital segment, which now includes its Conifer revenue cycle management subsidiary, saw revenue grow by 4.8% to $16.7 billion. 

The growth trajectory of each segment highlights recent changes in Tenet's investment strategy and the continuing trend of care shifting away from hospitals towards outpatient and other, more convenient, care settings. 

Last month, Fitch Ratings revised Tenet's outlook from stable to positive because of its "improving competitive position and the durability of its financial results in recent years, led by the increasing contribution of an ambulatory segment." 

USPI added 30 ambulatory surgery centers last year and aims to inject $250 million a year into ASC mergers and acquisitions and maintain a robust pipeline to support that level of investment. 

Simultaneously, it is continuing to build ASCs through its USPI development team and from its partnership with Towson, Md.-based SurgCenter. 

USPI also partnered with Renton, Wash.-based Providence, a 52-hospital system, to expand its ASC network into new markets. The partnership is expected to lead to 15 to 20 centers in the next two years.

So far in 2024, Tenet has sold nine hospitals across California and South Carolina for a combined $3.9 billion. The capital infusion will significantly improve its leverage position and free up more funds to invest outpatient. 

"USPI's services are generally 30 percent to 50 percent more affordable than similar services delivered in a hospital setting," Dr. Sutaria said in a recent earnings call. "The linkage to our hospital business creates an unquestionably superior platform, from which to draw talent, operating expertise and scale benefits."

Tenet now operates 52 acute care and specialty hospitals while USPI has interests in 461 ASCs and 24 surgical hospitals. The company expects de novo ASC acquisitions and the growth of USPI to lead to continued growth in 2024. 

"USPI's M&A engine, under the Tenet umbrella, continues to be an industry-leading differentiator and we maintain a robust pipeline," the company said in an April 15 filing with the SEC. "We continue to execute strategic acquisitions, de novo developments and divestitures to advance our business transformation, reduce leverage and enhance free cash flow over time."

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