The good news: In early
June, Tenet’s hospital admissions and surgeries hit 90% or more of pre-COVID
levels.
6:33 PM on Jun 16, 2020
Companies everywhere
are struggling to survive the coronavirus economy, but hospitals have a unique
challenge.
In addition to
dealing with a sharp drop in demand from fearful customers, providers had to
gear up for a potential swell in COVID-19 business. As the economy reopens, the
threat of a surge remains, and that could overwhelm hospital workers and public
health.
So how is Tenet
Healthcare, one of the nation’s largest hospital companies, dealing with the
new reality?
The locally based
company cut costs deeply, furloughing about 10% of the workforce and
slashing capital spending. Then it loaded up liquidity by selling $1.3 billion
in secured notes, boosting its line of credit and hoarding cash. It also tapped
Uncle Sam in a big way, raising over $2.5 billion from recent relief programs,
including $172 million awarded on Friday.
“We do appreciate the
stimulus we've received so far because we did lose a significant amount of
revenue in April,” Tenet CEO Ron Rittenmeyer told analysts Tuesday during a
financial update.
He’s hoping for more
from government, including a longer term to repay $1.5 billion in Medicare
advances.
Tenet, which moved its headquarters from downtown Dallas to
Farmers Branch last year, operates 65 hospitals across the country. It has over
500 other health care facilities, including centers for surgery, urgent care
and emergencies. California, Florida and Texas are its largest markets,
accounting for over half its 17,000 licensed beds and over half of the hospital
operations’ outpatient centers.
Last year, Tenet
reported $18.5 billion in revenue with a net loss of $243 million. At the end
of 2019, it had $14.6 billion in long-term debt and 113,600 employees,
including part-timers.
In April, Tenet’s
hospital admissions were a third lower than the year before, emergency room
visits fell by nearly half, and surgical cases at USPI, its ambulatory services
unit, were down 80%.
That’s a good proxy
of the economic impact of the lockdown. Here’s another metric of the times:
During the early days of the pandemic, Tenet said it was paying five to seven
times the usual rate for personal protective equipment.
In May, patient
volume began to recover after Tenet reached out to many who had put off care
because of the pandemic. In early June, traffic grew more, led by new bookings
for high-acuity, complex cases.
“This restart, I
believe, is very effective,” Rittenmeyer said Tuesday, citing “strong
momentum.”
Through the first
half of June, hospital surgeries were running at 95% of pre-COVID levels, the
company said. Admissions were at 90%.
But outpatient and ER
visits were only about three-quarters of pre-COVID levels, probably because
many of those patients are still delaying routine trips to a provider.
Tenet’s planning has paid
off, Rittenmeyer said, and the balance sheet looks good. The company had $2.67
billion in excess cash on Monday and a credit line of $1.9 billion with no
borrowings.
“We're not
comfortable though,” Rittenmeyer said. “We're not saying that we don't have
anything to do there. We have a lot more to do.”
Analysts were
concerned about increases in COVID-19 cases, and they asked about Arizona,
where Tenet has eight hospitals, including joint ventures. Arizona has
reported over 1,000 new cases a day, twice as many as
last month.
Tenet said it has
been trying to funnel COVID patients into one hospital or one area that has the
most expertise in the disease. In those COVID care zones, providers have
learned how to manage patients effectively, said Dr. Saum Sutaria, Tenet’s president.
“We are busy with
COVID, but we're not overwhelmed with COVID,” Sutaria said.
Tenet has “stepped
down” from intensive care to other floors COVID patients who are recovering, he
said. In other facilities, Tenet created COVID safe zones and launched a
targeted marketing campaign to tout the efforts.
The goal was to
convince the public that Tenet facilities were safe and clean and had strict
protocols in place. As surgery centers and clinics have reopened, patient
traffic has ramped up without new problems, Rittenmeyer said.
COVID-19 infections
have clearly increased in several markets, he acknowledged, “but it has not put
any undue stress on us.”
While Tenet did not
release financial results Tuesday, the continuing improvement in patient
volumes was good news. In May, business bounced back sharply, and in June,
volumes rose an additional 10 to 15 percentage points in various areas.
Tenet’s stock price
rose 65 cents Tuesday to close at $22.34. It’s down 41% for the year, a steeper
decline than rival HCA Healthcare has seen.
Hospitals face many
immediate challenges related to the coronavirus and the economy. Changes in
public policy, such as creating a public option for health insurance, would add
more.
And Tenet has an
additional vulnerability — a high debt load left over from an acquisition spree
early in the decade. Together, those factors create “extreme uncertainty” at Tenet, wrote Julie
Utterback, a senior analyst at Morningstar.
In her bear-case
scenario, leverage could remain so high that Tenet would default on major debts
that come due in 2022 and beyond.
“Overall, we see
significant risk of material value destruction,” Utterback wrote.
Those are problems
for a future day. Near term, it’s all about surviving the COVID crisis and
getting patients to come back. Tenet has lots of cash and borrowing power, and
a chance for more government help.
“We’re as well
prepared as we can be for any spike in demand,” Rittenmeyer said.
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