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Tenet reins in Q2 labor costs, stock jumps

Tenet reins in Q2 labor costs, stock jumps

By the numbers



Net income fell nearly 68% from $119M during the second quarter of 2021



Decline in same-hospital adjusted admissions compared to the same period last year



Labor costs declined amid higher wage rates

Tenet Healthcare’s shares spiked almost 10% after the company’s earnings call, signaling optimism even as its net operating revenues, income and volumes declined amid a recent cybersecurity breach.

Lower expenses for labor costs for salaries, wages and benefits cushioned Tenet’s earnings, falling 6.8% year over year in the second quarter. Tenet’s labor expenses also fell in the first quarter this year, making it an outlier among other for-profit peers as labor costs at hospitals have been spiking across the country.

The lower labor expenses are due to Tenet managing labor costs and volumes concurrently, executives reiterated during the company’s Friday earnings call. Tenet also highlighted a recent deal reached with the California Nurses Association for new contracts at eight of its hospitals. 

At the same time, Tenet is still facing barriers to staffing and has found difficulty staffing some lower-acuity services given excessive contract labor costs, CEO Saum Sutaria said.

“The reality is that the cost structure needed to staff up to take care of a lot of that volume is significantly more than just the marginal unit cost of one additional nurse, and we realized that very early in the pandemic, and so we have been very deliberate in managing that,” he said.

Once more full-time staffers are hired and the need for traveling nurses declines, “we will have the ability to open up those units and deliver that volume on a profitable basis,” he said.

Additionally, its ambulatory network’s net operating revenues rose 16% in Q2 compared to the same time last year, even though cases in the ambulatory unit were down 0.9% year over year. Its jump in net operating revenue is attributed partially to service line growth and its $1.1 billion acquisition of SurgCenter Development.

Currently, Tenet has interest in 410 ambulatory surgery centers and 24 surgical hospitals in 34 states through its ambulatory business segment, United Surgical Partners International.

The company has accelerated investments in that segment which is “a highly capital efficient business model, with capital needs that are a fraction of what we see in the hospital business,” Sutaria said.