Labor Questions Still Clouding Hospital Companies’ Outlooks

Oct. 24, 2022
COVID outages dent USPI’s results at Tenet while HCA executives are holding off on providing ’23 guidance until February.

The workforce questions bedeviling large segments of the healthcare sector reared their head again in last week’s third-quarter earnings reports from HCA Healthcare Inc. and Tenet Healthcare Corp., contributing to stock slides that wiped billions of dollars from the market values of those entities and several of their peers.

Executives with Nashville-based HCA said the company earned $1.3 billion in the three months ended Sept. 30, down from $2.5 billion in the same period of 2021. (Revenues slipped 2 percent to nearly $15 billion.) They attributed the drop in part to treating fewer COVID-related patients than in the prior-year period as well as the impact of last month’s Hurricane Ian on its important Florida operations.

Tenet’s leaders also cited a drop in COVID patients in reporting $268 million in Q3 profits, less than half their number of a year earlier, on revenues that were down slightly to $4.8 billion. But the Dallas-based company suffered more from the virus on the staffing front: In July, nearly 10 percent of the clinical staff in its hospitals called out at some point because of COVID. Even though volumes rebounded later in the quarter, the capacity crunch by those absences led to admissions falling more than 5 percent and hospital surgeries sliding 3.6 percent.

CEO Saum Sutaria said the lingering impact of COVID has led to some of Tenet’s United Surgical Partners International surgery centers not running at full capacity. But he said his team stands behind its target of growing EBITDA at those facilities between 4 percent and 6 percent annually.

“USPI did not face a significant trail-off in business, nor a shock that caused the business to fall backwards from its trajectory this year,” Sutaria said even though he and CFO Dan Cancelmi lowered the unit’s outlook for the year. “This is a very attractive business and deserving of the investments we make in it.”

Both HCA and Tenet were able to report a relative bright spot in that their spending on contract labor as a percent of total salaries, wages and benefits fell further, building on a trend started in Q2. Both executive teams expressed confidence they will be able to further manage down their use of more expensive contract labor as they both hire more full-time workers and look for efficiencies in their operations.

But HCA CEO Sam Hazen and CFO Bill Rutherford—who directed some of their contract labor savings to annual raises during Q3—held off on providing the early next-year forecast for costs that they typically provide in October because of labor uncertainty.

“We have responded to these unprecedented inflationary and macroeconomic pressures and we will continue to respond with our workforce initiatives and our financial resiliency program,” Hazen said. “But it is too early to judge the effectiveness of our response as these forces and the related governmental responses continue to evolve and impact various categories of our costs.”

Playing into that delay: HCA during the third quarter had to decline patients worth between 1 percent and 1.5 percent of its total admissions because of labor capacity constraints. And while Hazen is optimistic that the company, which runs 182 hospitals, can build its capacity late this year and early next, he also said the problem isn’t about to disappear.

“I do anticipate us having some closures here and there with respect to being able to take new patients at certain times,” he said. “And it happened pre-pandemic, but on a much lower level than it is today.”

The labor experiences and outlooks of HCA and Tenet stand against a troubling backdrop of healthcare employers losing talent of all stripes. A new study from Definitive Healthcare concluded that nearly 334,000 providers dropped out of the workforce in 2021. The “somewhat scary” findings show that, in the fourth quarter of last year alone, 117,000 physicians and more than 53,000 nurse practitioners left the workforce.

Shares of Tenet (Ticker: THC) got hammered Oct. 21 after reporting its results, giving up nearly a third of their value or about $1.8 billion of the company’s market capitalization. HCA’s stock (Ticker: HCA) was down more than 10 percent at one point but steadily recovered ground to close the day down about 6 percent—although that move meant the loss of more than $3 billion in value. Investors also took down shares of Community Health Systems Inc. (-14 percent) and Surgery Partners Inc. (-7 percent) as well as other big names during the session.

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