As we discussed in our last edition of TrustWorks On Call, the two largest for-profit health systems, HCA Healthcare and Tenet, posted double-digit operating margins in 2024, far surpassing the margins of their nonprofit competitors, half of which were in the negative. As their name suggests, for-profit systems possess structural advantages and face different incentives than nonprofit systems, much of which is captured by for-profits being responsive to shareholders versus nonprofits being responsive to community stakeholders. For-profits not only can but must make strategic decisions, such as which markets to operate in and which services to provide, that maximize shareholder returns, whereas the local boards of nonprofits govern with a variety of factors in mind beyond profitability. That being said, the “no margin, no mission” motto means that nonprofits with sufficient scale and unsustainable margins could learn something from the success of HCA and Tenet.

Both HCA and Tenet owe their operating success to effective cost control. In HCA’s case, it is not only the largest health system by hospital count but also uniquely capable at capturing efficiencies from this scale—in part by choosing which markets and services to enter and prioritize. Over the last three years, it has expanded its footprint while reducing its relative labor expenses, cost-to-charge ratios, and average length of stay. HCA serves as the gold-standard example of the hospital subcontractor, content to be neither a platform nor organizer of care and capable of finding a margin from nearly any service and payer. Tenet’s hospital business is slightly less efficient than HCA’s, but that margin is more than made up for by its prolific ambulatory surgery center (ASC) chain, United Surgical Partners International (USPI). In 2024, USPI posted a remarkable EBITDA margin of nearly 40 percent. Despite earning only 22 percent of Tenet’s total revenue, it produced 45 percent of its total margin. Where the outmigration of lucrative orthopedic procedures to lower-revenue settings has spelled trouble for many systems, Tenet’s pivot to maximizing efficiencies and volumes in the ASC setting has become the engine of its success. Other systems have taken notice, as Ascension, which suffered significant operating losses last year, is rumored to be closing in on a purchase of Amsurg, one of the largest ASC chains in the country. Whether Ascension or other nonprofits can emulate the success of Tenet and HCA ultimately depends on their ability to control costs—an evergreen challenge for hospital chains, but something at which for-profit ASC chains like Amsurg have excelled.