Tenet Healthcare To Announce Plans To Sell 27 Hospitals, 19 in California
Santa Barbara-based Tenet Healthcare on Wednesday will announce that the company intends to sell 27 -- more than 25% -- of its hospitals, CEO Trevor Fetter said Tuesday, the New York Times reports (Pollack, New York Times, 1/28). Tenet is the nation's second-largest hospital chain and owns 100 hospitals in 15 states. Tenet began downsizing last year, when it announced plans to sell or divest 14 facilities as part of an ongoing cost-cutting effort. However, unlike last year's sales, which focused largely on noncore markets, the hospitals in the upcoming sales will include a number in larger markets (California Healthline, 1/27). Of the hospitals Tenet plans to sell, 19 are in California, the company's largest market. The other facilities are in Louisiana, Massachusetts, Missouri and Texas. Fetter said that the sales are necessary under current market conditions, saying, "The strongest hospitals have always subsidized the weaker hospitals, but when the whole group is challenged economically, we need to devote resources from the strong hospitals back into those hospitals" (Rundle, Wall Street Journal, 1/28). Tenet officials said they expect to complete the sales by the end of the year and realize net profits of about $600 million (New York Times, 1/28). The sales are estimated to result in a $1.4 billion fourth-quarter charge that will lead to net losses for 2003 and 2004 (Wall Street Journal, 1/28). Fetter said, "By getting smaller, we will be able to accelerate the time it takes for a turnaround" (New York Times, 1/28).
The decision follows a three-month financial review that "exposed weaknesses" at some facilities, the Journal reports. The hospitals are "struggling to adjust to a sharp reduction" in Medicare outlier payments -- which reimburse for unusually expensive care -- after agreeing to reduce such charges last year. The company's bad debt expense has increased, in part because of greater numbers of uninsured patients seeking treatment at the hospitals and more patients whose health benefits have been reduced. According to the Journal, the company is experiencing "revenue softness" because of "smaller-than-expected" payment increases from managed care plans. The downsizing also comes after "a series of crises" during the past 15 months, the Journal reports (Wall Street Journal, 1/28). Tenet faces separate probes by the Senate Finance Committee, the Department of Health Services, the Securities and Exchange Commission, the HHS Office of Inspector General, the Justice Department and the Federal Trade Commission related to alleged Medicare fraud and other issues. The company also faces an investigation by the Florida Medicaid Fraud Control Unit and the U.S. attorney's office in Los Angeles (California Healthline, 1/27).
Fetter said that Tenet is selling some facilities in California partly to save money on state-mandated seismic safety upgrades, which must be completed by the end of 2007. Company officials estimate that it would cost about $1.6 billion to upgrade the 19 facilities that it plans to sell, compared with about $300 million to upgrade the 17 facilities that it is keeping (Wall Street Journal, 1/28). The upgrade costs for the facilities it is selling are higher primarily because they are older and larger, the Los Angeles Times reports. In addition, seismic upgrade requirements and a new state nurse-to-patient ratio rule that took effect Jan. 1 may make the California hospitals "a very tough sell -- even at fire-sale prices," the Los Angeles Times reports. Tenet officials expect to take a loss on the sale of most of the California facilities. Health officials in Southern California are particularly concerned about the effects of the hospital sales because all but one of the California hospitals to be sold is in Los Angeles County or Orange County. John Edelston, a health care consultant and former chair of the Los Angeles County Emergency Medical Services Commission, said, "This is not good news. If hospitals close, it will mean less access and longer waits than there already are" (Girion/Lee, Los Angeles Times, 1/28).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.