Tenet Healthcare Corp.'s leaders on Tuesday touted the company's success in cutting costs and growing earnings in the second quarter, highlighting metrics that were favorable even without the half a million dollars in federal grants the company recognized during the period.
Dallas-based Tenet managed to more than quadruple its profit during the quarter ended June 30 despite elective procedures being almost completely shut down in April and into May. Net income grew 239% year-over-year, from $26 million in the second quarter of 2019 to $88 million in the 2020 period.
Like its for-profit peers, Tenet's higher profit in the quarter was due in large part to hundreds of millions in federal stimulus grants. Tenet recognized $523 million in grants during the quarter, out of the more than $850 million it has received so far. But on the company's earning call Tuesday morning, Tenet CEO Ron Rittenmeyer emphasized the company's ability to cut costs—expenses dropped 11.3% in the second quarter to $4.2 billion—and bring back volumes quickly.
"Our results in the quarter and particularly in June underscore the ability of the business to adapt, flex and perform," he said, "and provide clarity that we will deliver at or above expectations even in times of a crisis."
Tenet leaders on Tuesday's call said the changes the company has made with respect to its cost structure during the quarter are permanent.
"As we recover from a volume perspective and get back to growing the business, the cost actions we have taken will help support driving margin growth," said Dan Cancelmi, Tenet's chief financial officer.
Tenet's adjusted earnings before interest, taxes, depreciation and amortization totaled $732 million in the quarter, up 9.4% from the prior-year period. Even excluding the federal grant money, adjusted EBITDA in the quarter still exceeded analysts' expectations and Tenet's own expectations, Cancelmi said.
Tenet's revenue dropped 20% year-over-year to $3.6 billion, below the $3.8 billion projected by Zacks Investment Research analysts. The revenue decline exceeded that of HCA Healthcare, which reported a 12% year-over-year decline, and Universal Health Services, which reported a 4.4% decline. Tenet's operating income grew 18% year-over-year to $471 million in the quarter.
Tenet's ambulatory surgical center visits were at 94% of their pre-COVID levels in July, and hospital admissions were at 90%. Outpatient and emergency room visits returned at a slower pace, measuring in July at 80% and 79% of their pre-pandemic levels, respectively. Excluding grant revenue, Rittenmeyer noted Tenet saw double digit increases in its net revenue per ambulatory case in the quarter, due to higher complexity and favorable payer mix.
The company's biggest area of cost savings was supplies, which dropped 19% year-over-year. Salaries, wages and benefits fell 13%. Brett Brodnax, CEO of Tenet's ambulatory subsidiary, United Surgical Partners International, explained on the call that when the pandemic hit, the company quickly flexed down hours by about 65%. The company is now using algorithms to ramp up capacity and staffing as needed, he said.
Tenet said it has also received about $1.5 billion in Medicare advance payments as of Monday, which it must begin repaying this month and finish repaying by April 2021.