Tenet Healthcare Selling Off Hospitals…And Maybe More… — John G. Baresky

…A survey from Deloitte and the Healthcare Finance Management Association of 90 hospital financial executives from merged or acquired organizations and phone interviews with 13 healthcare leaders indicates hospitals and health systems are looking to mergers and acquisitions for financial, operational, and strategic value…

Consolidation, Mergers, Acquisitions…

Three popular key words applied to search engines regarding the healthcare industry and especially the hospital / health system sector. Numerous marketplace forces drive this trend. These forces are driving Tenet Healthcare Corp. to offload some of its hospitals and possibly take more drastic measures.

…Tenet, based in Dallas, Texas is a healthcare provider / services conglomerate founded in 1967; it owns 77 hospitals, has 130,000+ employees and just under $20 billion in annual sales.​..

Early in September ’17, Tenet Healthcare shared with the healthcare and investor communities its plans to sell off 8 hospitals in the United States plus an additional 9 hospitals and clinics in the United Kingdom. Tenet operates hospitals / health systems, surgical centers and urgent care centers through a variety of business units and partnership arrangements. They also manage 6 health plans and more than 10 accountable care networks. It’s estimated they have approximately 20,000 licensed beds. Tenet also has a healthcare revenue management software business unit.

All of these entities and their respective revenues eventually are accounted for one by one at the bottom line. The 8 U.S. hospitals and 9 U.K. hospitals / clinics were low financial performers. Tenet is seeking to optimize its facility / service mix to address its debt which is substantial at $15 billion and respond to impatient flagship investors seeking better ROI.

Clinical, financial and organizational details in play…

Healthcare is a demanding and unforgiving business. Often perceived as a rewarding fat margin industry; it is rife with punishing challenges and change. Reimbursement pressures erode profitability. Remarkable clinician knowledge, big data insights, bullseye diagnostics and advanced therapies enable more critical patient types to be successfully treated. The promising breakthrough results are costly as innovation delivers better outcomes but requires providers to relinquish “old” technology before its full value is realized. The new and better options developed in quick succession benefit clinicians and patients but befuddle financials.

Ongoing healthcare reform issues add to administrative costs and dilute focus on the healthcare mission. Pivotal consideration applies to attracting and retaining well-educated, experienced clinicians to deliver optimum care. Regime change can trigger clinicians to leave or stay. Tenet is not immune to these intrinsic healthcare industry factors.

Change or fall behind..

​To offset lower reimbursement and maximize use of capital equipment / technology, facilities and top clinician teams, hospitals and health systems have been merging. New, energy-efficient, low maintenance facilities centered on delivering optimal care are being constructed. Some health systems have developed and marketed their own medical insurance plans. The strategy behind larger, more diverse provider organizations is to service more patients under one operating entity, streamline continuity of care, reduce competition and gain greater leverage against health plans and healthcare product manufacturers. Tenet has assertively undertaken these measures to sustain its growth and fortify its competitive position while assuming greater financial risk.

Friends and family feel the effects…

These changing business models impact the surrounding healthcare industry including pharmaceutical and medical device manufacturers, managed care organizations (MCOs), group purchasing organizations (GPOs), compounding pharmacies, distributors and wholesalers. Contracting, marketing / sales strategies and tactics change accordingly depending on who the hospital / health system buyers or sellers are, what terms are in place and what needs to be re-negotiated. The seller conceivably is relinquishing some leverage by off loading patient volume to the buyer; who in turn is gaining leverage by enlarging their organization. Buyers and sellers have to strategically account for these business arrangements, align with the requirements of regulators and manage deal impact on their patients. Tenet’s profitability is is in the middle of these equations.

…According to a study conducted by Washington D.C.-based Avalere Health (a healthcare consulting firm focused on strategy, policy, data analysis for life sciences, health plans, providers) and the Physicians Advocacy Institute (PAI), consolidation of hospitals and their increasing employment of physicians are driving up Medicare costs…

Commercial opportunities…

While Tenet is in the process of selling facilities to Paladin Healthcare (based in El Segundo, California) and HCA ( based in Nashville, Tennessee); other buyers are likely to surface. There are voices in the investor community which want Tenet to explore its potential to subdivide itself by spinning into several entities such as health system, health plan, surgical center / urgent care and financial software operating companies. In concept this has attractive investor attributes but is not without complexity and associated costs.

Tenet is not alone…

​The $15 billion debt burden versus $20 billion annual sales is an inescapable issue; it cannot be merely managed in perpetuity. Tenet Healthcare CEO Trevor Fettor has agreed to step down from his position. Tenet has its work cut out for itself to deliver high levels of care, choose a new leader, assertively address a corrosive debt load, maintain a competitive position and satisfy investors. As Tenet takes action to resolve its issues, it undoubtedly influences it competitors (and their investors) who are in the same challenging financial position to assess their options.

Thank you for reading this article; check out these other stories about hospital / health systems mergers and acquisitions; connect with me further through reading my other Medium articles or through my social media links:

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John G. Baresky — Brand Marketing, Product Management, Digital Marketing, Marketing Leadership, Product Launches, Marketing Strategy, Digital Strategy, Social Media, Market Access, Market Research, Marketing And Sales Collaboration