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Tenet posts $56M operating loss for second quarter

Investor-owned health system divested of Houston hospitals on August 1, and leaves open possibility of more divestitures.

Susan Morse, Senior Editor

Tenet's Twin Cities Community Hospital, Templeton, Calif., Courtesy tenethealth.comTenet's Twin Cities Community Hospital, Templeton, Calif., Courtesy

Tenet Healthcare Corporation on Tuesday reported a net loss on operations of $56 million in the second quarter of 2017, compared to a $44 million loss during the second quarter of 2016.

Some of the loss was attributable to a decline in admissions, due to being out-of-network with Humana from Oct. 1, 2016 to June 1, due to failed contract negotiations. The health system has been working to win back the admissions volume that was diverted while Tenet was out-of-network.

Tenet expects better financial results by the fourth quarter by targeting ambulatory and other successful service lines, according to CEO and Chairman Trevor Fetter.

During the second quarter, the ambulatory segment produced net operating revenues of $472 million, representing an increase of 6.8 percent as compared to $442 million in the second quarter of 2016.

Tenet last week acquired a minority position in new short stay surgical hospital in Tyler, Texas, which is an expansion of its long-standing partnership with Baylor Scott & White Health.

Surgical hospitals that perform inpatient and outpatient surgeries are typically much larger than an average surgery center and have higher revenues per case.

"It's a great business model; and with this addition, we now have 21 surgical hospitals in our portfolio," he said.

UnitedHealth Group this year bought Surgical Care Affiliates.

"Building out our ambulatory platform remains the primary focus for us, and we continue to target $100 million to $150 million in acquisition opportunities every year," Fetter said.

However, Tenet's hospitals and outpatient centers have experienced the same soft volume that has affected other companies in the industry, he said.

Tenet, a large investor-owned health system, has divested of some of its hospitals and affiliated outpatient centers.

[Also: HCA Gulf Coast Division buys 4 hospitals from Tenet, expanding Houston footprint]

On August 1, Tenet completed the sale of Houston-based hospitals and related operations to HCA, receiving proceeds of approximately $750 million. The money was used to pay down a revolving loan and to increase ownership in United Surgical Partners International to 80 percent.

Vice Chairman Keith Pitts said there could be more potential closings by the end of the year.

"Yes, I think we'll have some more announcements in 2017," Pitts said on the earnings call.

[Also: Trusted Health Plans acquires Harbor from Tenet, lays out expansion plan]

Other second quarter losses for Tenet were attributable to a $55 million decline in California Provider Fee revenue, the supplemental payments to hospitals. No revenue was recorded under the program in the second quarter of 2017, versus $55 million in the second quarter of 2016. The Centers for Medicare and Medicaid program has not yet been approved by a new administration, according to the earnings report.

Tenet also saw a $15 million decline in electronic health record incentives. This quarter $6 million of incentives was recorded versus $21 million in the second quarter of 2016.

Recent construction projects projected to increase revenue include new patient towers in Delray Beach, Florida and Detroit, Michigan, which began serving patients in July.

At Delray, the investment will improve the provider's ability to deliver high-end cardiac and trauma services and add capacity at one of Tenet's busiest hospitals, according to Fetter.

"We are continuing to invest in targeted service lines and have largely completed four significant construction projects that will strengthen our position in four strategic hospital markets," Fetter said. "We are also making progress on portfolio refinement, including completing the sale of our Houston-based hospitals and affiliated outpatient centers and redeploying that capital to increase our ownership position in USPI."

Twitter: @SusanJMorse

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