Five years ago, Dallas-based Tenet Healthcare embarked on a new chapter in the health system's journey, reducing its debt profile and having its ambulatory surgery center business drive a greater portion of the company's performance, according to CEO and Chair Saum Sutaria, MD.
Tenet committed to deleveraging the company, realizing the fair value of assets through divestitures and growing its ambulatory business, United Surgical Partners International, by capitalizing on the shift to outpatient procedures at lower costs.
"The proceeds from asset sales reflect their high quality, helping us reduce leverage, which now provides strategic and financial flexibility for future growth," Dr. Sutaria said Sept. 9 during the Wells Fargo Healthcare Conference. "Our ability to deleverage the company with the types of proceeds we've generated … has been very good. We are seeing the company at a place where the leverage generates not only a degree of strategic and financial flexibility, but stability for the organization's ability to invest in growth over the next few years."
Tenet, now a 52-hospital system, significantly improved its leverage position this year, selling nine hospitals in high-growth markets in California and South Carolina for a total of $3.9 billion. It also plans to sell its majority stake in five more Alabama hospitals for $910 million this fall.
Proceeds from these hospital sales are being used to reduce the health system's debt and expand its outpatient footprint through strategic ASC acquisitions and de novo developments.
USPI is the largest ASC chain in the country with 520 ASCs and 24 surgical hospitals across 38 states. By the end of 2025, it plans to have 575 to 600 facilities in its portfolio.
This would be almost double the outpatient footprint of its closest competitor, Deerfield, Ill.-based SCA Health, an affiliate of UnitedHealth Group's Optum.
"USPI, the strongest ASC platform in the country, had the strongest recovery in 2023 from a volume perspective. We look at that as a measure of strength of preference of the USPI platform," Dr. Sutaria said. "The growth was more than two times what our annual guidance would look like from a midpoint standpoint."
Acuity has also improved in the company's ASCs, leading the company to raise its guidance mid-year based on performance, organic growth and cost management.
In July, Tenet raised its EBITDA outlook for fiscal year 2024, projecting a range of $3.8 billion to $4 billion, up $300 million from the previous year.
"There's still plenty of room to grow with outpatient surgeries in orthopedics to move into a freestanding ASC setting, and to do it in a cost-effective way," he said. "I remind people all the time that our ASC portfolio is virtually 100% freestanding. So the cost savings from moving into that setting, aside from the service and all that stuff is, is quite beneficial. And it opens the market when things are more affordable for more growth."
Dr. Sutaria said USPI's value proposition has "only strengthened, and the multiples at which we're acquiring and synergizing haven't changed."
USPI's acquisition multiples remain steady, and it has maintained a disciplined process in deal evaluation, according to Dr. Sutaria, who said changes in Tenet's balance sheet flexibility won't erode this discipline.
Tenet is not interested in "risky" or "turnaround" assets and will continue to "acquire high quality assets that have good margins," Dr. Sutaria said.