Tenet Healthcare Corp. is taking advantage of favorable debt markets to launch a $400 million buying spree that will allow it to gain strength in key markets.
Tenet said last week that it is planning about $400 million in near-term acquisitions, which spokesman Rick Black said will include about eight to 10 outpatient buys, primarily in geographical areas where it is already present. It also plans to focus on its core acute-care business as well as its growing information technology and clinical informatics division.
The publicly traded company, based in Dallas, named one acquisition already in the pipeline, disclosing exclusive talks to acquire Emanuel Medical Center, Turlock, Calif.
Deals will be funded from $800 million of new debt, which will also be used to refinance $216 million in current debt obligations that come due in February and reduce the balance on its bank line.
Tenet has been fairly quiet on the acquisition front in recent months, and when it has struck deals, it has preferred small, bolt-on buys. In 2011, the company spent $84 million acquiring 15 outpatient centers and 26 physician practices, according to its annual report. In the first half of 2012, it spent $13 million acquiring a diagnostic imaging center, majority stakes in two ambulatory surgery centers and 10 physician groups.
Michael Waterhouse, an analyst with Morningstar, noted that Tenet may be playing catchup with larger peer HCA, Nashville, which has been successfully building its outpatient business. “We're still forecasting that they're going to expand in the outpatient area specifically,” he said about Tenet.
Waterhouse added that Tenet is likely to stay within its key urban markets, where it may have as much as 20%-30% of the market. “That gives them a lot more leverage with payers,” he said. “It's not too often that you see hospitals expand into new markets.”
Outpatient activity has been one of the key revenue drivers at for-profit systems, helping to counteract sluggish inpatient admissions and bring in lucrative commercial payers. It has also been a way for providers to take a more active role in population health management.
“When they say acquisitions, it's not just hospitals anymore,” said Joe Lupica, chairman of Newpoint Healthcare Advisors. “Companies adjust their tactics to reflect reality. All providers are going to have a need for a broader base of care so they can be more accountable.”
Michael Blass, a healthcare attorney at Arent Fox, noted that reimbursement pressure has led providers to move more care outside of the hospital setting, and is also sparking more alliances with post-acute companies ranging from dialysis centers to skilled-nursing facilities.
“The transactions are what you'd call more vertical than horizontal,” Blass said. “The message is that, like it or not, bigger is going to be better and bigger is going to be better able to absorb those risks.”
Black also pointed out that Tenet is expanding into population health management through subsidiary Conifer Health Solutions. While its core business has been revenue-cycle management, Conifer President and CEO Stephen Mooney said he sees a growing role for its capitation management services, and the unit last week forged a deal to buy InforMed, a healthcare cost analytics firm, for undisclosed terms.
Tenet might also form more accountable care organizations, Black said. The company already has an ACO set up at Doctors Medical Center, Modesto, Calif., as part of a partnership with Blue Shield of California.
Waterhouse described the revenue-cycle management business as “fairly high-margin,” but said it likely will remain a small part of the company and represents the most diversification Tenet is likely to explore.
But the business is growing. In May, Catholic Health Initiatives, a health system based in Englewood, Colo., took an undisclosed stake in Conifer. Under the 10-year agreement, Conifer will offer revenue-cycle management services at 56 CHI hospitals.
“We really feel that's a game-changer for Conifer,” Black said. “It also took us into the not-for-profit space in a really big way.”
Tenet has stood on the sidelines, though, as its peers have formed joint ventures with not-for-profit, mission-driven systems; the past two years have seen ventures between the likes of LifePoint Hospitals and Duke University Health System, Iasis Healthcare and Aurora Health Care, and Vanguard Health Systems and Tufts Medical Center.
“I don't think we've ruled anything out in regard to collaborations with systems,” Black said. “And we're looking at that, as well.”