Dallas-based Tenet Healthcare is reshaping its business model to focus on its ASC arm United Surgical Partners International.
This pivot, aimed to boost profitability, enhance operational efficiency and meet the growing demand, has resulted in USPI's massive growth and financial gains for the health system.
Here's a breakdown on why Tenet's ASC strategy is so successful:
Portfolio restructuring:
Tenet Healthcare has been actively selling hospitals to focus on its ASC footprint, enabling greater investment in outpatient care, which is both cost-effective and increasingly favored by patients and payers. In 2024 alone, Tenet sold 14 hospitals for more than $4.8 billion.
"We continue to believe accelerating spend at USPI is the single most accretive thing to bring value within the company," Tenet CEO Saum Sutaria, MD, said in an Oct. 29 third-quarter earnings call.
With a 7.1% share of the ASC market, USPI is the largest ASC chain by number of physicians and centers. USPI's portfolio includes 520 ASCs (376 consolidated) and 24 surgical hospitals (seven consolidated) in 37 states.
This growth strategy involves acquiring existing centers and developing new facilities, including high-acuity specialty centers. USPI currently has nearly 20 centers in syndication and opened six ASCs in the third quarter, including a deal with Synergy Orthopedics to develop San Diego’s largest dedicated musculoskeletal ASC. In the first three quarters of 2024, USPI acquired 45 centers in Q1, eight in Q2, and the ASC chain Covenant Physician Partners.
Additionally, the company acquired 45 centers in the first quarter, eight in the second quarter and purchased ASC chain Covenant Physician Partners.
Innovative operational model:
A key part of Tenet's strategy involves converting single-specialty ASCs into multispecialty centers to increase efficiency and profitability, according to Dr. Sutaria during a second-quarter earnings call. While multispecialty ASCs can be difficult to manage, Tenet and USPI leverage their scale to overcome these hurdles.
Tenet also prioritizes high-acuity, high-demand specialties, particularly orthopedics, to meet evolving healthcare needs. In the third quarter, USPI saw a 7.6% increase in net revenue per case, driven by high-acuity procedures and a favorable payer mix.
Dr. Sutaria emphasized that USPI plans to migrate lower-acuity, high-volume procedures out of its ASCs to optimize capacity.
“Acuity continuing to increase is a good fundamental marker of strength,” he noted. Orthopedics, in particular, is expected to be a major growth driver over the next five to 10 years as more procedures shift from hospitals to outpatient settings.
USPI's strategy also includes getting ahead of the recruiting challenge and potential volume declines as centers mature, allowing them "to renew their … ability to build and grow," according to Dr. Sutaria.
Acquisition and integration
USPI’s growth strategy hinges on swift integration of newly acquired ASCs into Tenet’s broader operating platform.
"Our model emphasizes integrating these centers as quickly as possible," Dr. Sutaria said, highlighting the importance of streamlining operations and leveraging scale for improved outcomes.
In November 2021, Tenet acquired over 90 ASCs from SurgCenter Development for approximately $1.2 billion. Progress on this acquisition slowed but resumed in 2023, with Tenet now on track to meet its integration goals.
Financial strategy
Tenet’s hospital divestitures have reduced debt and enhanced financial flexibility, allowing for reinvestment in higher-return outpatient services.
"All of the sales that we have executed on have been at high multiples to reflect the operational improvements that we have made to each of these facilities over the last several years," Dr. Sutaria said in the third quarter earnings call. "As a result of these sales, our current hospital portfolio has an enhanced return profile, more attractive geographies for us and our business model, and higher expected returns … should result."