Tenet to eliminate 1,300 jobs as hurricanes, admissions slam earnings
Weathering the impact of Hurricanes Harvey and Irma, unanticipated Medicaid cuts in Texas and Florida, and dwindling admissions, Tenet Healthcare expects a $367 million net loss from continuing operations, according to preliminary third-quarter earnings reported Friday.
The hurricanes dented admissions 2.6% and revenue from hospital operations 2.3% compared to the third quarter last year. Hospital revenue was also buffeted when the CMS didn't approve the Medi-Cal hospital fee program, which subsidizes healthcare services for children, seniors and low-income citizens in California, as well as changes to Florida's low-income pool program. Net revenues should be about $4.59 billion, which would be down from $4.85 billion last year.
To mitigate the headwinds, Tenet officially announced a cost-cutting strategy that will net the company about $150 million a year in savings, predominantly by eliminating 1,300 positions.
It is cutting its regional management layer, which Modern Healthcare reported on Oct. 6, to streamline operations and decision-making by removing some of the bureaucracy, the company said.
Analysts said the management reorganization was long overdue as the company continues to endure softening hospital admissions, rising deductibles and other factors that have compressed operating margins.
The company will also benefit from centralizing its support functions, renegotiating contracts with vendors, and tweaking its ambulatory and revenue-cycle business segments, the company said.
Despite its struggles, Tenet executives were pleased with expected adjusted earnings before tax, interest, depreciation and amortization of $507 million, which falls within its outlook.
Investors have debated breaking up Tenet's three main business lines or leaving the company whole as the health system continues to shed low-margin hospitals to pay down debt and focus on healthier operations.
"I think it would be a very difficult transaction to sell the company whole," said Thad Kresho, U.S. health services deals leader for PricewaterhouseCoopers.
Former Tenet CEO Trevor Fetter resigned Monday amid the company's financial troubles and planned reorganization. Executive Chairman Ronald Rittenmeyer is filling in while the company continues its search for a permanent CEO.
Fetter announced in late August that he would step down in March or when a successor was appointed and that the investor-owned chain would shake up its board. The company appointed James Bierman to the board, who was the president and CEO of medical supply distributor Owens & Minor from September 2014 to June 205.
Fetter came under pressure when activist hedge fund Glenview Capital Management resigned its two board seats in August and looked to push change from the outside.
Dallas-based Tenet is the nation's third-largest investor-owned hospital chain with 77 hospitals. In addition to its hospital segment, Tenet owns a majority stake of United Surgical Partners International, a giant ambulatory surgery center chain that Tenet continues to expand inside and beyond its hospital markets. It also has Conifer Health Solutions, a revenue-cycle software that helps providers register patients and collect hospital bills.
Tenet expects to earn up to $1 billion from additional hospital divestitures in the United Kingdom and Philadelphia, outside of its three hospitals in Houston that it recently sold to HCA.
Despite its high leverage, hospitals that have lower margins than its competitors, growing debt load and mounting shareholder scrutiny, Tenet is well-positioned to make operating improvements or change its strategic direction, Moody's analysts said in a report issued Wednesday. The company has no significant near-term maturities and good liquidity with minimal restrictions, analysts said.
But if Tenet sells its ambulatory surgery business to pay down its debt, the company would also "lose scale and diversity and risk considerable operating disruption because these businesses are closely aligned with its hospitals," according to the report.
"There are a lot of interested parties in their assets, but it depends on what they want to do," Kresho said.
An edited version of this story can also be found in Modern Healthcare's Oct. 30 print edition.
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