HCA, Tenet Turn a Corner on Contract Labor Costs

July 26, 2022
Both companies’ leaders see spending shrinking for the rest of this year

The leaders of HCA Healthcare Inc. late last week said they have made significant headway in reducing the contract labor costs that stung the Nashville-based company’s bottom line and hammered its stock price earlier this year.

Commenting on second-quarter results that showed net income of nearly $1.2 billion on revenues of $4.8 billion, CEO Sam Hazen said HCA spent 22 percent less on contract labor in June than it did in April and was able to both grow new recruits by 18 percent and lower employee turnover by a 20 percent from the first three months of the year. And he noted that the trend looks set to benefit HCA in coming quarters, too.

“These metrics, early successes if you will, give us some confidence that the combination of our compensation strategies, our retention strategy, and then the mix of our labor and workforce should improve as we move through the balance of the year,” Hazen said on a conference call.

Shares of HCA (Ticker: HCA) rallied about 11 percent July 22 on the company’s Q2 report but have since retreated a little. (By contrast, the stocks of staffing company AMN Healthcare Services Inc. (Ticker: AMN) and Cross Country Healthcare Inc. (Ticker: CCRN) tumbled more than 10 percent July 22, although they have since recovered some of that ground.) Year to date, however, HCA shares are still down more than 20 percent.

On HCA’s call, CFO Bill Rutherford noted that contract labor constituted about 8 percent of the company’s second-quarter salaries and benefits spending. That amounts to a difference of about $90 million from the first three months of the year. Given HCA’s heft in the hospital and broader nursing space as well as the reaction of AMN and Cross Country investors, its Q2 report could signal that the market for contract and travel nurses peaked in recent months.

Tenet Healthcare Corp. executives are on roughly the same page as Hazen and Rutherford. The Dallas-based hospital and surgery center operator trimmed its contract labor spend during the second quarter through both less usage and lower wages. Speaking after the company’s own Q2 earnings report, CFO Dan Cancelmi said he expects that number will trend down further in the coming months – albeit with the caveat that it won’t retreat to pre-pandemic levels. And CEO Saum Sutaria said his team isn’t letting down its guard.

“This is going to be an important agenda item for at least another year or two,” Sutaria said.

Other items of note from the second-quarter reports of the two companies include:

• The cyberattack that took down parts of Tenet’s technology systems in April cost the company $100 million in adjusted EBITDA, although Cancelmi and Sutaria said they expect to be fully repaid by the company’s insurers. Work on repairing damage from the hack, which cut same-hospital patient revenues by 20 basis points during the quarter and forced the company to divert some patients to other hospitals, is moving slowly and steadily, Sutaria said.

• Tenet paid the Baylor Scott & White health system $406 million on June 30 to buy the latter’s 5 percent stake in United Surgery Partners International. The deal gives Tenet full ownership of USPI, which runs 410 surgery centers and 24 surgical hospitals in 34 states and which Sutaria has said will be Tenet’s main growth engine in coming years.

• Speaking of growth, Hazen said HCA’s abandonment of its planned purchase of five Utah hospitals from Steward Healthcare after federal regulators objected won’t have a big effect on how the company views M&A as a part of its broader spending plans.

“Clearly, we're interested in new markets, we think we have the organizational capability and the financial capability to create a lot of value in the communities across the country,” he said. “And hopefully, we will see some opportunities on that front.”

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