Tenet Healthcare Corp.'s plans to create a new integrated delivery system in central Alabama hinge on a forthcoming ruling from the Internal Revenue Service.
Santa Barbara, Calif.-based Tenet, a national for-profit hospital chain, said it has agreed to form a joint venture with Birmingham, Ala.-based Eastern Health System to serve 16 counties in the surrounding area.
But after four years of talks, the companies might have to wait another year to complete their deal. Eastern, a not-for-profit system, doesn't want to proceed until the IRS rules on whether it will be able to keep its tax-exempt status. A decision is not expected until at least mid-1998.
"We're hinging the whole deal on the ruling," said Jan Burleson, a spokeswoman for Eastern. She said an unfavorable ruling likely would mean that the health systems would look at other ways of partnering. "We'd still form some kind of network but not the way we wanted," she said.
Under the current plan, a new limited liability company, to be called Alabama Health Services, would manage Tenet's 515-bed Brookwood Medical Center and Eastern's 282-bed Medical Center East, both in Birmingham.
According to the latest available financial information from SMG Marketing Group, a Chicago-based marketing and consulting firm, Brookwood reported net income of $2.1 million on revenues of $165.2 million in 1995. Medical Center East had net income of $12.4 million on revenues of $104.3 million in 1996, according to SMG.
The partners also plan to combine seven outpatient centers, five diagnostic centers, four occupational health centers, three outpatient rehabilitation centers, an assisted-living facility, a skilled-nursing facility and home-care services.
The new company would be managed by a Tenet subsidiary called AHS Management. Tenet would have a 68% stake in AHS, with Eastern owning 32%.
The companies said Eastern will have the option of purchasing an interest in Tenet's 222-bed Lloyd Noland Hospital and Health System in Fairfield, Ala. Lloyd Noland reported net income of $5.2 million on revenues of $57.8 million in 1996, according to SMG.
Burleson said Eastern still is considering the option, which would bring Lloyd Noland into the new system and up Eastern's AHS stake to 35%.
Although Tenet would be the majority owner, the partners said they would share certain policy and operational actions, such as amendments to AHS' operating agreement, admission of new members to the AHS system and selection of its chief executive officer.
The joint venture grew out of the companies' existing relationship, said Ed Tudanger, senior vice president of operations for Tenet's southeast region. Tenet and Eastern partnered a year ago to run an HMO called Health Advantage Plans, and two years ago to jointly operate 51-bed St. Clair Regional Hospital in Pell City, Ala. St. Clair reported net income of $1.8 million on revenues of $10.7 million in 1995, according to SMG. Those organizations now will be part of AHS, as well, Tudanger said.
Tudanger said he is optimistic that Eastern will be able to remain tax-exempt given it will continue operating separately its not-for-profit 57-bed Blount Memorial Hospital in Oneonta, Ala., and a housing facility for the elderly and disabled in Birmingham.
Eastern said the venture will help it meet its charitable obligations.
"By streamlining our processes and systems and focusing on best practices, we can serve the community better together than we ever could have as stand-alone facilities," said Robert Chapman, Eastern's CEO.