Tenet Healthcare at Barclays Conference: Strategic Focus on High-Acuity Growth

On Wednesday, 12 March 2025, Tenet Healthcare Corporation (NYSE: THC) presented at the Barclays 27th Annual Global Healthcare Conference. The company discussed its strategic initiatives, highlighting both opportunities and challenges. Key topics included Medicaid reform, operational strategies, and financial performance. Tenet is focusing on high-acuity services and optimizing its hospital portfolio, while also addressing potential tariff impacts.

Key Takeaways

• Tenet is prioritizing high-acuity services, with a focus on same-store revenue growth of 3% to 6%.
• The company is effectively managing tariff risks with fixed pricing and capped escalators.
• Strong free cash flow of approximately $1.2 billion is expected, supporting capital allocation priorities.
• Contract labor costs are down to 2.1% of salaries, wages, and benefits, showing effective labor management.
• Tenet plans significant growth in total joint procedures at USPI, anticipating nearly 20% growth in 2024.

Financial Results

• Free Cash Flow: Tenet expects strong free cash flow of about $1.2 billion, enabling capital investments without affecting leverage ratios.
• USPI Revenue Growth: The company projects same facility revenue growth of 3% to 6% for 2025, consistent with past performance.
• Contract Labor: Labor costs are effectively managed, with contract labor at 2.1% of salaries, wages, and benefits, aligning with pre-COVID levels.

Operational Updates

• USPI Acuity Shift: Tenet is shifting towards higher acuity procedures, focusing on high-margin service lines and reducing low-acuity procedures.
• Hospital Portfolio Optimization: The company is enhancing its hospital portfolio, focusing on quality facilities that meet community needs.
• Tariff Management: Tenet is managing tariff risks through strategic supply contracts, with 70% of its supply profile secured for the year.
• ACA Exchange Growth: The company has observed significant ACA exchange growth, particularly in red states like Texas and Florida.

Future Outlook

• USPI M&A and Growth: Tenet prioritizes mergers and acquisitions in USPI and capital expenditure in high-acuity strategies, with new centers outperforming expectations.
• Capital Allocation: The focus remains on USPI M&A, CapEx, deleveraging, and share repurchases.
• Tariff Impact: Tenet seeks clarity on tariffs by year-end to assess potential impacts on 2026, while maintaining confidence in 2025 guidance.

Q&A Highlights

• Medicaid Reform: Discussions highlighted the political and healthcare implications of potential Medicaid cuts, with expectations of work requirements and enrollment standards.
• Site Neutrality: Tenet faces limited site neutrality risk due to its business model, which minimizes physician employment.
• Capital Deployment: Deleveraging and share repurchases are viewed as attractive options given the company’s current valuation.
• Hospital Divestitures: Tenet is pleased with its current hospital portfolio and remains focused on running desirable facilities.

For a complete understanding, readers are encouraged to refer to the full transcript below.

Full transcript - Barclays 27th Annual Global Healthcare Conference:

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Hi, good morning. Welcome back to the Barclays Global Healthcare Conference. My name is Andrew Mach, and I’m the Facilities and Managed Care Analyst at Barclays. And I’m pleased to be joined on screen with Saum Suttaria, CEO of Tennant Healthcare as well as SunPark, CFO and Will McDowell, Vice President Investor Relationships. Welcome.

Saum Suttaria, CEO, Tenet Healthcare: Thank you. Well, thanks for having us.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Saum, maybe I’ll flip it to you for some opening remarks and then we’ll kick it off.

Saum Suttaria, CEO, Tenet Healthcare: I think Will wanted to make a quick comment here before we started.

Will McDowell, Vice President Investor Relationships, Tenet Healthcare: Yes. Thank you, Sam. Yes, Andrew, just in the context of our conversation today, we may be making some forward looking statements. And I would suggest that listeners refer back to our cautionary statement within our SEC filings as well as our most recently filed earnings release. And that was the opening comment I wanted to make.

Andrew, I’ll turn it back to you. If you just want to go into Q and A, we’re happy to do that.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Okay, great. So, there’s obviously been a lot of attention on Medicaid reform and provider taxes from Congress and investors. I think Tenet, like most operators, believe these payments are critical to sustain hospital services in the Medicaid program. But I think it’d be helpful to get your perspective on the direction that policy discussions are taking in D. C.

And what you’re how you’re interpreting the risk not only for Tenet, but also for the broader hospital industry?

Saum Suttaria, CEO, Tenet Healthcare: Yes. Thank you for the question. I mean, this issue of how important Medicaid is to the country has obviously come front and center based upon the desire to extend the tax cuts that were made in the first Trump administration. Look, I would say that the discussion in Washington has been wide ranging obviously. There are many perspectives out there about how much opportunity there may be in Medicaid from an expense standpoint to pay for those tax cuts.

But there are some basic facts that are hard to escape. First of all, let’s just frame this, roughly 10% of voters 15% to 15% of voters are on Medicaid. If you add the people that have once been on Medicaid you add another 20%. If you add those people who know a family member who’s on Medicaid you add another 20%. I mean you very quickly reach 50% of the electorate when you think about that from an immediate family standpoint.

And our polling has shown that there is opposition to cutting Medicaid by almost a two to one margin among this group. And what’s also interesting in this is that that opposition is stronger among Trump voters than non Trump voters in this past election. So there’s a lot of political and electorate related fact base that is still coming out. Now when you start to add to that you’ve got 875,000 veterans, you’ve got the Children’s Health Insurance Program, one in three children with cancer are on Medicaid. The polling gets even stronger as you can imagine, right.

So if you step back from this, not surprisingly if you’re trying to extend and pay for the tax cuts, there is a need to look for opportunities that offset that from the standpoint of passing a reconciliation bill. But what’s important to understand is how critical Medicaid is not only to the healthcare ecosystem, but also politically when you start to actually get underneath the polling and understand the importance of the programs. I have no idea at this point from a there’s no crystal ball here in terms of where this is going to land. But I do think that increasingly the legislators understand both the political and healthcare implications of doing this and I suspect that where this lands will be somewhere closer to work requirements and possibly looking to tighten up enrollment standards or criteria and verification as a final opportunity here.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Great. That’s helpful. And then on the last earnings call, you noted that operating discipline and insights into the business can help you pivot as needed. What sort of pivots are you referring to? Should we see some of these reform measures materialize, whether it’s provider taxes or something else?

Saum Suttaria, CEO, Tenet Healthcare: Well, I mean, I think there’s a few things. Obviously, expense management, capacity expansion in markets with a significant amount of Medicaid, select programs that we provide access from with respect to that patient population would be less of a focus for investment and growth if not curtailing some of those services as we go. I mean we’d have to adjust the business no differently than we adjusted the business when there was significant compression of demand during COVID. And we’ve demonstrated a lot of flexibility in the business in doing that. Look at the same time this ultimately any cuts that are made here or any people that are made uninsured it’s not a good thing for their healthcare.

And so we have to balance those two issues in the way we approach this.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Great. Let’s move on to site neutral reform. I think it always surprises me that investors assign a high risk of site neutrality to ASCs when those settings arguably deliver the surgical care in the lowest cost settings already. So I think the risk is somewhat misunderstood, but I also think there’s some that look at your high margins at USPI and say that might come under pressure should we see some sort of reform here. Maybe it’s worth taking a step back to help us understand how USPI is able to achieve industry leading EBITDA margins and how investors can get comfort with those margins as Congress contemplates site neutrality?

Saum Suttaria, CEO, Tenet Healthcare: I think the reimbursement mechanism and site neutrality is really disconnected from how we generate strong margins at USPI. So let’s just first quickly address site neutrality. The ASC business, the ASC are all on freestanding rates today and we’ve migrated to that. We also in general even in our hospital business have more limited site neutrality risk than the average because our business model is not one of heavy physician employment that then drives a lot of business into the HOPD setting like in many other settings and we don’t do a lot. I mean we’ve moved a lot of our imaging and other things more preferentially into freestanding settings because it’s more consumer friendly.

And so there’s a lot of this risk that is significant writ large for the industry, but significantly mitigated for the various business units at Tennant on a relative basis. So it’s not just the ASC business that’s somewhat insulated. It’s important to understand that. And before you ask, no, we haven’t quantified it because there are three different proposals out there at least that have floated around related to site neutrality. And until there’s some clarity on where this may go, we won’t have any more specific comments than that.

Now in terms of USPI’s margins, look this is a first of all USPI has always had strong performance. This is a healthy multi specialty business. It’s the most innovative surgical platform providing the highest acuity ambulatory surgical care of the platforms that exist in the ambulatory surgery space. That pivot has been very deliberate in terms of what we have done. That creates value for the health system because things that would be more expensive in a hospital setting are coming out into the outpatient setting.

We provide a broad range of management services that really run high throughput ASCs which generate high margins and of course we’re helped by the fact that this business model doesn’t have a lot of fixed cost. And when you don’t have a lot of fixed cost you don’t have to have extraordinarily high prices, a little bit of price actually hits the bottom line very, very quickly. And that’s an important factor in generating the margins. We believe our pricing and our margins are highly sustainable. We don’t have a lot of exposure to Medicaid and we think the site neutrality risk at USPI is minimal.

This is an incredibly sustainable investable business even in this political uncertainty that we face.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Great. Moving on to tariffs, that’s another issue currently being contemplated by the administration. How do you think about that risk for your business and do you have enough visibility into where your supplies are sourced to size the potential risk on tariffs?

Saum Suttaria, CEO, Tenet Healthcare: Yes. Well, I mean the tariff topic seems to come and go every week these days. Our first of all, for all of our commodities, we participate with HealthTrust. We think that they’ve done a nice job of staying on top of this issue and being focused with their partner base in commodity supplies. For most of our contracts, we have fixed pricing or capped escalators that are already in place.

As they have said in the past 70% of the supply profile is already contracted for this year and we’re hopeful that by the end of this year there’s some more clarity on where and if a more permanent tariff environment exists. But at this point we feel pretty comfortable with where our guidance is for 2025. And I think that it’ll take some more definitive action around the tariffs to actually begin to size what 2026 impact, if any will be. Great.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Let’s move on to some of the fundamentals of the business at USTI. You’ve made a couple of changes to guidance this year that are worth noting. First, you removed the same store case growth and same store pricing metric from guidance and instead shifted the focus to same store revenue of 3% to 6%. Why do you think it’s better for investors to focus on that same store revenue metric versus the underlying components?

Saum Suttaria, CEO, Tenet Healthcare: Sund, do you want to comment on this one? And then I can maybe talk a little bit about USPS strategy.

Sun Park, CFO, Tenet Healthcare: Yes, sure. Thanks, Andrew. Yes, listen, I think we step into 25%. Our initial guidance is 3% to 6% for same facility revenue growth as you noted. It’s consistent with our guidance from a year ago.

And historically, I think we’ve performed at the high end of this range at least for the last two years and even longer if you look at check back in history. As Sam is going to hit on the USPS strategy overall, but we think this guidance actually better reflects the actual strategic and day to day operational moves that were making taking USPI. Don’t get us wrong, our long term growth algorithm is still the 2% to 3% volume, 2% to 3% same store pricing. But especially if you look at the last two years given the variability that can take place between these two components year over year. And again based on our intentional shift toward higher acuity procedures, we think as investors and internally as well that it’s better to focus on the revenue growth expectations.

Great. And some more questions.

Saum Suttaria, CEO, Tenet Healthcare: I would add to that briefly just that again as I said earlier in the USPI commentary, our focus is on continuing to build and expand our high margin service lines. And that means by definition in some multi specialty partnerships or even selectively some centers that we will be less focused on some of the high volume low acuity procedures that have some risk of going into physicians offices in the next few years or some of them even are possible today. And we think this is the right thing for the business and we’re very comfortable with the way in which our net revenues and our earnings are growing largely ahead of expectations in this space.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Great. And as you look to expand and deploy capital and vet potential opportunities for USPI, what are the most important criteria you’re looking for?

Saum Suttaria, CEO, Tenet Healthcare: Well, the number one thing is the quality of the partnership and the physicians who are growth minded and refreshing, they’re proving an ability to recruit. That’s number one. Obviously, that means that they are performing with high levels of quality and safety. You have an environment that is compliant. There are obviously markets that we prefer in which we want to grow, where we can operate, where we have some scale.

And then our ability to improve those operations through the various synergies that we bring into the environment is another important factor. I mean our pipeline is very healthy. We have a lot of opportunities on the table both small and big that exist at USPI. And as we have been, we’re very disciplined about that process. I would note that for the centers that we acquired roundabout this time a year ago, they’re performing ahead of our expectations that we outlined at that time.

And so our integration processes and other things have been buttoned up even when we do things at scale and we feel pretty good about that.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Great. And sticking with the capital deployment, your priorities have been relatively unchanged, but your discretionary free cash flow has increased significantly with the better earnings profile of the company. Net leverage is already down to 2.5 times. So how should we be thinking about the excess free cash flow? Is that largely going to share repurchase at this point?

Sun Park, CFO, Tenet Healthcare: Yes. Andrew, I would say in general, our capital allocation priorities have not changed, right? We’re consistently prioritizing USPI M and A and CapEx into our high acuity strategy in the hospitals. And then we’re going to deleverage, pay off debt and share repurchase. Clearly, at the moment we’re sitting in today as we look at our valuation, no matter how you look at it whether it’s free cash flow yield or multiples or other pure analysis, we feel it’s a very attractive point to invest into our own shares and generate return for shareholders.

So I think you’ll see us and we’ve talked about it publicly before that will be pretty intentional about our share repurchase program in the near future. Longer term, I think our general commentary and strategy still stands. And I think most importantly, whether or not compared to last year we do more or less year repurchase. I think important point is what you mentioned at the very beginning, our free cash flow after NCI is strong. It’s $1,200,000,000 roughly at the midpoint of our guidance.

That affords us the capability to do all the things that we just talked about without impacting our leverage ratios.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Great. And you sold 14 hospitals or so over the last year and now have a portfolio of hospitals under 50. Is there a number you have in mind that represents a critical mass needed to execute the enterprise strategy? And are we close to that number? Or is there still more room to go on the hospital divestitures?

Saum Suttaria, CEO, Tenet Healthcare: Yes. Look, we’re pleased with the current portfolio of hospitals. We’re running them well based upon the results we’re generating from them, which quarter to quarter keep beating our expectations through 2024. Obviously, we feel like we have a handle on how to work in those markets. Our focus is less on numbers.

It’s more focus the focus is more on are we running attractive facilities that ensured people want to come to that they want this part of their network that they’re insisting to their employers provide services that have a reputation and work with doctors that have a reputation that make them desirable in communities that we serve. And that’s really our focus. And I think we have a much stronger portfolio today that meets that criteria than we did a year, year and a half ago.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Great. Maybe finishing up on USPI, total joints have been a big driver of volumes and acuity strength over the last few years with same facility total joint growth up nearly 20% I think in 2024. That’s obviously a big number. So can you help deconstruct that? How much of that is same physician demand and how much is that new physicians or service line expansions?

Saum Suttaria, CEO, Tenet Healthcare: Yes. Well, it’s a combination of both. I mean, this is a little bit of the point I was raising with multi specialty. We had a lot of orthopedics only centers. We acquired a bunch more through the SCD transactions a few years ago and really established ourselves at scale as the leader in orthopedics from a volume and care perspective.

We then began to introduce orthopedics into our multi specialty environment so that we’re doing ortho and GI and other things side by side with each other to expand the capacity of existing ASCs that obviously involve bringing new doctors into partnerships over time in order to create those multi specialty opportunities. At the same time, the industry is still pushing things out from the inpatient to HOPD to the ASC setting in lower extremity joints, hips and knees. Increasingly, we’ve taken on new things like shoulders and grown that as the indications have become more and more available. We have expanded our robotics strategy in the ASCs specifically. Usually when I talk about robotics I’m talking about general surgery, but even in orthopedics which we’ve participated in robotics for a long time, we’ve expanded that strategy.

And then finally, you have you just have a demographic demand that’s increasing faster even than a fast aging population, right. I mean the aging of the population above 65 is moving at a pretty nice clip right now and the frequency of total joint procedures is increasing even faster than that. And so there’s demand that we are servicing as this happens. So I think there’s a lot of positive things. Look I’ve said all along our belief from five years ago from today is that really in the ASC space Orthopaedics represents the best single best growth opportunity over the next decade.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Great. And if you’re growing total joints 20% or so and reporting flat same store volumes, clearly some procedures are getting crowded out of the ASC setting. Which procedures are those and where are they going?

Saum Suttaria, CEO, Tenet Healthcare: Again, I don’t know that it’s crowded out. I mean, I think we’re being pretty deliberate about upgrading the acuity in USPI’s portfolio, based upon the work we’re doing with the partnerships, with the assets, with the mix that’s there. And so some of the much more lower acuity things that can sometimes be done in a physician’s office are migrating out. So extraordinarily low acuity pain procedures and other things. What you want to focus on in the ASC setting is something where you’re providing a deeper, more invasive level of pain management and analgesia for patients as opposed to something that’s just a lot simpler and can be done in another setting.

Then that’s just going to improve the sustainability of our business over time. It’s the right thing to do.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Great. And then maybe shifting to the hospital side, we saw an acceleration of high dollar cost treatments across the healthcare system throughout 2024, including specialty drugs, advanced imaging and infusions. What’s been your experience on the hospital side? Have you seen an uptick in higher acuity patients or procedures that’s consistent with that trend?

Saum Suttaria, CEO, Tenet Healthcare: Yes. Well, I mean our CMI has been increasing significantly. We’ve obviously in our operating model where our factor input costs are well controlled, our length of stay is well controlled. That acuity has driven a significant amount of revenue recovery from COVID and obviously the margins of the hospitals have improved significantly by being focused. It’s allowed us to deploy technology and other things to stay at the cutting edge in our hospitals, which give us an opportunity to continue to grow and earn market share over the future.

So I think this concept that we laid out five or six years ago that what’s really sustainable in acute care hospitals is emergent and elective high acuity procedure based care as a way to manage a portfolio of services is working. And it’s also allowing us to be more measured with how we spend capital because we’re not building tower after tower to expand for low acuity med surg work that might just move out of the hospitals anyway.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Great. And moving maybe on the labor side, we’ve cycled through the worst of COVID, but we’re still in an elevated demand environment for inpatient services. How do you manage that? And what is the labor supply and wage environment look like today?

Saum Suttaria, CEO, Tenet Healthcare: Yes. Simon, do you want to?

Sun Park, CFO, Tenet Healthcare: Yes. On the management side, I mean, I think it’s both the operational piece. Thomas talked a lot about how we would leverage data and analytics to really look at our capacity and labor supply, floor by floor, service line by service line. So we’re very disciplined about that. And I think everyone has seen the impact of that as we drove down both our total wages and contract labor percent quicker and more effectively than the industry we feel.

Going forward, yes, I mean our contract labor is at we in Q4 ’2 point ’1 percent of SWV that’s at the low end of pre COVID historical ranges. We’re very comfortable there and to be honest market by market, assuming the environment continues, you might even see us invest a little bit of contract labor into certain markets or service lines. So I think we’re very comfortable about the 2% to 3% range overall. 2.1% is excellent. And I think that’s also in the context of base wages.

We feel it’s pretty stable. It’s a pretty reasonable environment, pretty supportive of our overall goals. So, I think we’re in a reasonable spot with all that.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Great. Maybe with the last minute here, I want to touch on the ACA. You guys have talked a lot about the ACA contracting as being a driver of exchange growth and commercial mix over the last few years. Can you elaborate on that contracting strategy more broadly? And how do you think about the nice growth you’ve seen there against the potential expiration of enhanced subsidies?

Saum Suttaria, CEO, Tenet Healthcare: Well, I mean, the exchange population is an incredibly important population. I mean, it covers people that aren’t necessarily qualified for Medicaid, many of whom have still on the lower end of income. But importantly, what the exchange supports is small business growth, right. I mean, if you think about the people that are on these exchanges that are working that aren’t part of a large employer, the exchanges support small business growth which is an incredibly important priority politically today. 50% of the exchange growth that we’ve seen over the last few years has come in five red states.

That’s really important that includes Texas and Florida. We’ve done some polling in those states and politically the probably the most insightful thing we’ve heard is that not only does the average consumer and voter for this administration month month in increased costs and they’re generally aware enough to understand that the tax cuts for a middle income family probably helped them at about $1,000 a month 1,000 a year, I’m sorry, roughly. So $13.50 dollars a month versus $1,000 a year. Again, I think politically this is a very difficult thing to deal with given the importance of these programs that exist today. Look from our standpoint, we’ve found that the exchange population utilizes the ER more frequently.

The impact on the hospital business is more significant than it is on the ASC business. And regardless if there were some sort of caps or other things put in, there are other ways to get coverage. You can buy down into bronze plans etcetera that would have very low subsidies. Maintaining coverage for people is and should be a critical priority and I think the political dynamics which is why I focus on that a little bit more today on Medicaid and the exchanges to share some of the facts from our polling work actually are strengthening the argument to protect these programs not weakening it.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: So, I’m you’ve mentioned polling work a few times during this conversation. Are you bringing that data and putting that in front Congress? Just curious like what the reception level has been as you share that information with Congress?

Saum Suttaria, CEO, Tenet Healthcare: Absolutely. And there’s tremendous interest in the work, right, because there’s a dearth of data in particular about how voters on both sides of the aisle are responding to these programs and the importance of these programs. Like, yes, think about it, it’s somewhat surprising, but it shouldn’t be to find how families, middle income families understand the importance and can quantify for you the impact of these exchange subsidies on their family. And that’s very important that these programs are well known, understood and important to these voters.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Great. Well, with that, we are out of time here. Thank you so much for joining us here today and please enjoy the rest of the conference.

Saum Suttaria, CEO, Tenet Healthcare: Andrew, thank you very much and we appreciate your indulging us as we work out our protocols around how we get back out to conferences. So thanks for the accommodation.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Absolutely. Thank you. Thank you.

Will McDowell, Vice President Investor Relationships, Tenet Healthcare: Thanks.

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