How Did Tenet Healthcare's Net Income Soar 139%?

Tenet beat Wall Street expectations by a hefty amount in the fourth quarter of 2023.

Tenet Healthcare recently reported impressive results for the quarter and year ended December 31, 2023, beating Wall Street expectations.

The company's net income in the fourth quarter of 2023 was $244 million, compared to $102 million in the same period of 2022. This significant increase in net income is attributed to strong same facility revenue growth and disciplined operating management.

But How Did Tenet Pull it Off?

Tenet's adjusted EBITDA, excluding grant income, for the fourth quarter of 2023 was $1.010 billion, compared to $857 million in the fourth quarter of 2022. This growth is driven by strong volume growth in the ambulatory care and hospital operations segments, favorable payer mix, and improved contract labor costs, the report said.

As HealthLeaders has been reporting, focusing on a favorable payer mix and lowering those contract labor costs has been key for CFOs looking to improving margins.

Additionally, the company recognized a $52 million aggregate favorable pre-tax impact associated with Medicaid supplemental revenue program adjustments in California and Texas.

It’s also worth noting Tenet’s COVID-related stimulus grant income. In the fourth quarter of 2023, Tenet received $2 million pre-tax ($2 million after-tax) in grant income, while in the same period of 2022, it received $40 million pre-tax ($30 million after-tax).

The company's balance sheet and cash flows also showed positive trends.

Cash flows provided by operating activities for the year ended December 31, 2023, were $2.374 billion, compared to $1.083 billion in the previous year. Tenet produced free cash flow of $1.623 billion in 2023, compared to $321 million in 2022.

This increase in cash flows highlights the company's strong financial performance and ability to generate cash, something that a lot of CFOs have been battling so far in 2024.

Significant business transactions

Tenet also made noteworthy transactions recently.

It completed the sale of three hospitals and related operations in South Carolina to Novant Health for approximately $2.4 billion. Additionally, the company signed a definitive agreement to sell four hospitals and related operations in Orange County and Los Angeles County, California, to UCI Health for approximately $975 million.

These transactions are expected to result in pre-tax book gains, reducing the company's income tax expense in 2024 by approximately $190 million due to a reduction in interest expense limitations.

In terms of its business segments, Tenet's ambulatory care segment, which includes United Surgical Partners International, saw a 15.4% increase in net operating revenues in the fourth quarter of 2023 compared to the same period in 2022.

This growth is driven by strong same-facility net surgical case growth, acquisitions, opening of new facilities, service line growth, and improved pricing yield the earnings report says.

Tenet's hospital operations and services segment, primarily consisting of acute care and specialty hospitals, also reported positive results.

Net operating revenues increased by 6.0% in the fourth quarter of 2023 compared to the same period in 2022, mainly due to increased adjusted admissions, favorable payer mix, and improved pricing yield.

The segment's adjusted EBITDA, excluding grant income, was $546 million in the fourth quarter of 2023, compared to $450 million in the same period of 2022.

What it all means

Overall, Tenet's earnings report highlights its overall positive performance in 2023, driven by strong revenue growth and effective operational management.

CFOs understand the importance of disciplined operating management, prudent financial decisions, and strategic investments in technology and ambulatory care—and Tenet was a pretty good example of this in 2023.