News Column

Tenet Reports Adjusted EBITDA of $460 Million for the Quarter Ended June 30, 2014

August 18, 2014



By a News Reporter-Staff News Editor at Managed Care Weekly Digest -- Tenet Healthcare Corporation (NYSE:THC) reported Adjusted EBITDA for the second quarter ended June 30, 2014 of $460 million, an increase of $124 million, or 36.9 percent, as compared to $336 million in the second quarter of 2013. Excluding the effect of the California Provider Fee program from both periods would have resulted in an even greater increase of $190 million, or 70.4% in the quarter (see also Tenet Healthcare Corporation).

"I am very pleased with Tenet's performance in the second quarter. All growth and profitability metrics exceeded our expectations," said Trevor Fetter, president and chief executive officer. "Our success at capturing incremental market share through strategic investments, service line expansion, and successfully positioning Tenet's hospitals to benefit from key aspects of the Affordable Care Act all contributed to a great quarter. We also continue to exceed expectations for the benefits from our 2013 acquisition of Vanguard. Tenet grew at near-record rates in commercial patient volumes, inpatient admissions, outpatient visits, surgeries and emergency department visits."

Mr. Fetter continued, "Our multi-year strategy to transform Tenet from a regional operator of hospitals to a national diversified healthcare services company is driving significant growth in value. Our business trends are positive, and we are in the early days of a long term transformation in the delivery and financing of healthcare services. We are raising our 2014 EBITDA Outlook range, but only by the outperformance we reported in the second quarter, until we have greater visibility into the longer-term trends driving the strong growth we've generated in the first half of 2014." Discussion of Results (Percentage changes compare Q2'14 to Q2'13 on a same-hospital pro forma basis, unless otherwise noted. Pro forma operating metrics are defined as including both Tenet and Vanguard legacy hospitals in both reporting periods.) Tenet achieved admissions and adjusted admissions growth of 2.8 percent and 4.0 percent, respectively, compared to the second quarter of 2013, on a same-hospital pro forma basis. Pro forma performance metrics include legacy Vanguard operations in both reporting periods. The growth trend in commercial admissions continued to strengthen in the second quarter achieving the best quarterly same-hospital performance in more than a decade. Paying admissions increased by 4.8 percent on a pro forma basis and 4.4 percent on a same-hospital basis.

Outpatient visits increased by 7.1 percent on a pro forma basis and 6.3 percent on a same-hospital basis. Approximately 85 percent of the company's same-hospital outpatient growth was organic. Surgeries grew by 8.3 percent on a pro forma basis and 14.2 percent on a same-hospital basis. Emergency department visits grew by 4.8 percent on a pro forma basis and by 8.0 percent on a same-hospital basis.

In the five states that expanded Medicaid eligibility under the Affordable Care Act, Tenet achieved a decline in uninsured plus charity admissions of 2,238 admissions, or 54.3 percent, and an increase in Medicaid admissions of 4,685 admissions, or 22.9 percent. Uninsured plus charity outpatient visits declined by 19,739 visits, or 26.9 percent, and Medicaid outpatient visits grew by 62,154 visits, or 24.5 percent, in these same five states. Across the entire company, including those states that did not expand Medicaid, uninsured plus charity admissions declined by 3,030 admissions, or 21.8 percent, while Medicaid admissions increased by 5,479 admissions, or 11.3 percent.

More than 2,700 admissions and more than 24,000 outpatient visits in the second quarter were identified as patients insured by exchange products created as part of the Affordable Care Act. These exchange volumes were more than triple the exchange volumes identified in the first quarter.

Net operating revenues, after provision for doubtful accounts, were $4.042 billion, an increase of $102 million, or 2.6 percent, compared to pro forma net operating revenues of $3.940 billion in the second quarter of 2013. These revenue increases primarily reflect volume growth, improved terms in commercial managed care contracts, and growth in the company's Conifer services businesses. These growth drivers were partially offset by a decline of approximately $87 million in health plan revenue due to a reduction of covered lives under contract with the Arizona Medicaid program, and the absence of revenue from the California Provider Fee program in the second quarter of 2014 compared to $66 million in the second quarter of 2013. Excluding the impact of the California Provider Fee program, net patient revenue per adjusted admission increased by 1.5 percent on a same-hospital basis. Excluding the impact of the California Provider Fee program, patient revenue net of bad debt expense per adjusted admission increased by 2.5 percent on a same-hospital basis and 1.9 percent on a pro forma basis. Commercial managed care revenue increased 7.0 percent per admission and 2.9 percent per outpatient visit on a pro forma basis.

Selected operating expenses for hospital operations, defined as the sum of salaries, wages and benefits, supplies and other operating expenses, increased by only 0.7 percent per adjusted admission on a pro forma basis. The selected operating expense metric for hospital operations excludes the Company's Conifer services business, health plans, and a provider network in Southern California. Excluding incremental expenses related to increased physician employment, same-hospital selected operating expenses per adjusted admission declined by 0.3 percent. The operating expense increases reflect volume growth in the company's supply-intensive service lines, especially surgical volume, as well as increases in employee compensation. Electronic health records incentives recorded in the second quarter of 2014 were $58 million, a $17 million increase compared to the $41 million recognized on a pro forma basis in the second quarter of 2013. These incentive payments are not included in the definition of selected operating expenses.

Bad debt expense declined by $71 million, or 18.2 percent, to $320 million in the second quarter of 2014 on a pro forma basis. The decrease in bad debt expense was primarily attributable to a $78 million pro forma decline in uninsured revenues. Bad debt expense as a percent of revenues before bad debts was 7.3 percent, a pro forma decrease of 170 basis points compared to 9.0 percent in the second quarter of 2013. The same-hospital self-pay collection rate was 27.8 percent in the second quarter of 2014, a 90 basis point decline compared to 28.7 percent in the second quarter of 2013. The same-hospital commercial managed care collection rate was 98.3 percent in the second quarter of 2014, a 10 basis point increase compared to 98.2 percent in the second quarter of 2013.

Conifer reported Adjusted EBITDA of $44 million, an increase of $16 million, or 57.1 percent, compared to $28 million in the second quarter of 2013. Conifer's revenues were $285 million in the second quarter of 2014, an increase of $66 million, or 30.1 percent, compared to $219 million in the second quarter of 2013.

Income from continuing operations in the second quarter of 2014 was $17 million after-tax, or $0.17 per diluted share, excluding $27 million in after-tax impairments, restructuring charges, acquisition-related costs, litigation and investigation costs and loss on debt extinguishment. The comparable after-tax exclusions were $122 million in the second quarter of 2013. Income from continuing operations, excluding these items, was $69 million, or $0.66 per diluted share in the second quarter of 2013.

Net loss attributable to common shareholders in the second quarter of 2014 was $26 million after-tax, or $0.27 per share, compared to a net loss of $50 million after-tax, or $0.49 per share, in the second quarter of 2013. The second quarter of 2014 included a $92 million increase in pre-tax interest expense compared to the second quarter of 2013. This increased interest expense is substantially due to the $4.6 billion of financing related to the Vanguard acquisition and the $300 million used to finance share repurchases since March 31, 2013.

Cash and cash equivalents were $406 million at June 30, 2014 compared to $113 million at December 31, 2013. Approximately $143 million of net revenues related to the California Provider Fee program, the Texas Medicaid disproportionate share funding, and the Texas uncompensated care 1115 Waiver program had not been received by the Company as of June 30, 2014. Accounts receivable days were 48.9 days at June 30, 2014, an improvement of 0.2 days compared to 49.1 days at March 31, 2014. Outlook for Third Quarter and 2014 Adjusted EBITDA The Company's Outlook range for Adjusted EBITDA for the third quarter of 2014 is $400 million to $450 million and earnings per share in a range of a loss of $0.30 per share to income of $0.21 per share. No revenue related to the California Provider Fee program is assumed in this third quarter Outlook. Electronic health records incentives are assumed to contribute approximately $5 million to the third quarter's Adjusted EBITDA.

The Company raised its 2014 Adjusted EBITDA Outlook range to $1.85 billion to $1.95 billion. Management's Webcast Discussion of Second Quarter Results Tenet management will discuss the Company's second quarter 2014 results on a 10:00 a.m. (ET) webcast on August 5, 2014. Investors can access the webcast through Tenet's website at www.tenethealth.com/investors. A set of slides that will be referred to on the conference call is available on the section of the Company's website relating to the webcast.

Keywords for this news article include: Hospital, Medicaid, Legal Issues, Managed Care, Health Policy, Affordable Care Act, Tenet Healthcare Corporation.

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Source: Managed Care Weekly Digest


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