The COVID-19 pandemic took a major bite out of a key financial metric for Tenet Healthcare in the latter half of March: pre-tax earnings.
Dallas-based Tenet's adjusted earnings before interest, taxes, depreciation and amortization took a $125 million hit in the first quarter of 2020 due to lower patient volumes—most pronounced in its ambulatory facilities—higher supply and staffing costs and maintaining readiness for COVID-19 patients at its facilities. Tenet's adjusted EBITDA rounded out the quarter at $585 million, down 6% from the prior-year period. The company's stock price jumped more than 11% by mid-morning Tuesday on the better than expected first quarter results.
"The impact from COVID-19 in the back half of March was significant on our results in the quarter," Dan Cancelmi, Tenet's chief financial officer, said on Tuesday's earnings call. "Until March, we were on pace for a very strong quarter."
Tenet took a number of actions in response to the pandemic, including closing more than 100 of its United Surgical Partners International ambulatory surgery centers. USPI surgical volumes were down 75% by the end of March, Tenet CEO Ron Rittenmeyer said on the call.
"April will be a very weak month," he said.
The investor-owned company spent more money acquiring personal protective equipment, which prices on PPE running five to seven times more than normal, Rittenmeyer said. He said the system also chased "numerous" PPE leads that turned out to be scams.
Tenet also reduced its capital spending by about 40%, or about $300 million.
Admissions to Tenet's hospitals declined 15.2% in March after the company stopped performing elective surgeries in the middle of the month to preserve capacity for COVID-19 patients. Admissions were down 4.5% in the quarter and hospital surgeries declined 6.9%.
Like its peers, Tenet is now focused on reopening its facilities. The pace of the reopening depends on compliance with state orders, Dr. Saum Sutaria, Tenet's chief operating officer, said on the call. The moratoriums on elective surgeries have lifted in 18 out of Tenet's 20 hospital markets and the "great majority" of its ambulatory markets, he said.
As of May 1, Tenet was treating 771 COVID-19 patients systemwide. It was investigating another 308 patients for the coronavirus. The company said its hospitals were not overwhelmed by the pandemic.
It will take several months to ramp up USPI's volumes to pre-COVID-19 volumes, Rittenmeyer said. As facilities start to reopen, he said they're seeing approximately 40% of their previous cases.
The first quarter of 2020 started out strong for Tenet, with adjusted EBITDA performing $40 million above budget, with all three of its business units performing better than expected. By the end of March, hospital volumes had fallen by 50%, Rittenmeyer said.
Despite the challenges, Tenet drew $94 million in net income in the first quarter year over year, compared with a $20 million net loss in the 2019 period. The company's revenue declined 0.6% in the quarter to $4.5 billion. That included a 0.7% decline in Tenet's largest segment, its hospital business, a 2.1% increase in its ambulatory segment and a 4.9% revenue decline in its revenue-cycle subsidiary, Conifer Health Solutions.
One aspect of Tenet's recovery has been launching a marketing campaign focused on assuring the safety of its emergency rooms. Rittenmeyer said.
"In hospitals, it will be a balance of how quickly COVID cases fall, how effectively we can rebalance the surgical volume and how well we can reach into the communities and reassure the patients and the overall community that the hospital is open and safe," he said.
Tenet received about $345 million in grants under the Coronavirus Aid, Relief, and Economic Security Act, or about 0.2% of the $175 billion authorized by Congress, Rittenmeyer said. CMS has given Tenet about $1.5 billion in advanced Medicare payments, which the company will have to start repaying in August and complete by March 2021 "unless Congress acts to extend the repayment schedule, which would be extremely helpful," Rittenmeyer said.
Tenet also hopes to defer about $250 million in payroll taxes, half of which would have to be repaid in December 2021, another half in December 2022.
