Tenet Healthcare Corp. is swapping control of two of its Southern California hospitals for a piece of a third hospital located in a tony Los Angeles neighborhood.
The trade is viewed by local healthcare observers as evidence that a successful managed-care contracting network in Southern California must have geographic coverage down to the block, not just the city.
Last week Santa Barbara, Calif.-based Tenet and Cedars-Sinai Medical Center, the prestigious 783-bed hospital on Los Angeles' west side, unveiled plans to form a joint operating company to pursue service contracts and to directly accept risk under a modified state HMO license.
As part of the deal, Tenet agreed to lease Cedars two of its hospitals for 20 years: 135-bed Century City Hospital and 225-bed Midway Hospital Medical Center.
Cedars will run the three hospitals, which will make up the network along with several hundred affiliated physicians. Tenet and Cedars will jointly own the network.
Financial details, including the lease payments, were not released, and a definitive agreement is expected to be reached within 90 days.
"The Cedars deal should be thought of as constructing a geographically confined managed-care network," Tenet spokesman Harry Anderson said.
Los Angeles' west side is a crucial component of any provider network or insurance product. Relatively affluent and jammed with people having insurance coverage, it's one of the most competitive markets in the city.
Cedars has held its turf there with a sterling reputation, but nearby University of California Los Angeles Medical Center has been aggressive in building its own regional network.
"It's a little peculiar, only because Tenet is the largest player in Southern California," said Steve Valentine, president of the Camden Group, an El Segundo, Calif.-based consulting firm. "But if (Tenet's) goal is to strengthen itself locally, they've accomplished all that."
Tenet's Anderson said other area hospitals may be approached to join the network, but he did not provide specifics.
Valentine said he believes hospitals in Inglewood and the South Bay neighborhoods of Los Angeles-an area about 10 miles south of Cedars-would be likely candidates.