Business context and reporting period
Tenet Healthcare Corporation’s Form 10-K covers the fiscal year ended December 31, 2022. Tenet operates three segments: Hospital Operations, Ambulatory Care (USPI), and Conifer. At year-end, it operated 61 hospitals, held interests in 442 ambulatory surgery centers and 24 surgical hospitals, and Conifer served approximately 660 clients.
The filing is an annual report, not a standalone fourth-quarter report. It provides selected Q4 operating statistics and segment revenue, but the supplied text does not provide a clear complete Q4 income statement.
Financial results and key metrics
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Net operating revenue | $19.174 billion | $19.485 billion |
| Operating income | $2.333 billion | $2.871 billion |
| Net income available to Tenet common shareholders | $411 million | $914 million |
| Diluted earnings per share | $3.79 | $8.42 |
| Adjusted EBITDA (non-GAAP) | $3.469 billion | $3.483 billion |
| Adjusted EBITDA margin | 18.1% | 17.9% |
| Net cash from operating activities | $1.083 billion | $1.568 billion |
| Capital expenditures | $762 million | $658 million |
GAAP operating margin was 12.2%, versus 14.7% in 2021; common-shareholder net income margin was 2.1%, versus 4.7%. Operating cash flow less capital expenditures was approximately $321 million in 2022, compared with $910 million in 2021.
- Hospital Operations: Segment net operating revenue before intersegment eliminations was $15.061 billion, down 5.8%. Segment Adjusted EBITDA was $1.777 billion, down from $1.931 billion.
- Ambulatory Care: Revenue was $3.248 billion, up 19.5%, mainly reflecting acquisitions and same-facility growth. Segment Adjusted EBITDA increased to $1.327 billion from $1.197 billion.
- Conifer: Revenue was $1.316 billion, up 3.9%; third-party client revenue rose 10.2%. Segment Adjusted EBITDA was $365 million versus $355 million.
At December 31, 2022, cash and cash equivalents were $858 million, down from $2.364 billion a year earlier. Total long-term debt was $15.079 billion; net debt to Adjusted EBITDA was 4.1x. The company had no cash borrowings under its $1.5 billion revolving credit facility, with $1.5 billion reported available, and $116 million of standby letters of credit outstanding under its credit and letter-of-credit facilities. Interest expense was $890 million, or 38% of operating income.
Material changes versus the prior comparable period
- Consolidated revenue decreased 1.6%; Hospital Operations revenue declined with lower volumes and COVID-related activity and the 2021 sale of the Miami hospitals. Ambulatory Care growth partly offset the decline.
- Same-hospital admissions fell 4.5%, surgeries fell 3.7%, and outpatient visits fell 4.8%. The filing cites lower COVID-related volumes and acuity, the cybersecurity incident, and other volume pressures. Same-hospital salaries, wages and benefits as a share of revenue increased to 50.3% from 48.9%.
- Common-shareholder net income fell to $411 million from $914 million. The comparison was affected by $445 million of net facility-sale and consolidation gains in 2021, including a $406 million gain on the Miami hospital sale. In 2022, impairment, restructuring and acquisition-related charges rose to $226 million from $85 million, and early debt-extinguishment losses were $109 million versus $74 million.
- Operating cash flow declined $485 million. The company repaid or had recouped $880 million of Medicare advances in 2022, compared with $512 million in 2021; 2022 also included higher tax payments and restructuring, acquisition and litigation payments. All remaining Medicare advances were repaid or recouped by year-end.
- Tenet acquired Baylor’s remaining 5% USPI interest for $406 million, increasing its ownership to 100%. It added 37 operating ASCs through acquisitions and opened 15 de novo centers.
Outlook, management commentary, risks and unusual items
- Management expects 2023 capital expenditures of approximately $625 million to $675 million and annual interest payments of approximately $835 million to $845 million. It stated a long-term objective to reduce leverage, principally through capital allocation and Adjusted EBITDA growth.
- USPI aims to own and operate 575 to 600 ASCs by the end of 2025. Tenet also opened its 100-bed Fort Mill hospital in 2022 and began developing a San Antonio healthcare campus, with estimated construction cost of approximately $230 million.
- Management estimated that 2023 Medicare FFS IPPS payment changes could increase annual payments by approximately $55 million; outpatient payment changes could add approximately $9 million, while physician fee schedule changes could reduce revenue by approximately $4 million. These are estimates, not guarantees.
- The April 2022 cybersecurity incident temporarily disrupted some acute-care operations and involved exfiltration of confidential company and patient information. Tenet estimated an adverse pretax impact of approximately $100 million; it received $14 million in insurance recoveries during 2022 and filed a claim for additional losses.
- COVID-related grants contributed $194 million of grant income in 2022, versus $191 million in 2021. Management warned that significant future pandemic relief should not be assumed. The public health emergency was scheduled to end May 11, 2023, and Medicaid eligibility redeterminations could reduce coverage beginning April 2023.
- Other material risks include labor shortages, contract-labor and wage costs, inflation and supply constraints, payer concentration and reimbursement negotiations, government-program changes, patient receivable collectability, extensive healthcare regulation and litigation, and substantial debt. Tenet recorded $94 million of impairment charges and $118 million of restructuring charges in 2022.
- In January 2023, Tenet agreed to sell its 51% interest in San Ramon Regional Medical Center to John Muir Health, subject to approvals and closing conditions. Tenet also reported reaching a settlement in principle with the DOJ in January 2023 concerning a Detroit Medical Center investigation; it said it was fully reserved for the potential settlement at year-end.
Important facts for investors to verify
- Whether hospital volumes and margins recover, particularly given lower same-hospital admissions and elevated labor costs.
- Cash generation, receivables collection and liquidity after Medicare advance repayments, capital spending, debt service and share repurchases.
- Debt maturities, refinancing costs and progress toward reducing net leverage from 4.1x.
- Whether USPI acquisition-driven growth and its ASC expansion target translate into sustainable earnings and cash flow.
- The final insurance recovery and any litigation, regulatory or data-privacy consequences of the cybersecurity incident.
- The outcome and financial impact of the DOJ settlement, the San Ramon divestiture, and changes to Medicaid and Medicare reimbursement.