In its first major downsizing in its four-year existence, Tenet Healthcare Corp. revealed plans last week to divest up to 20 of the chain's 129 hospitals to trim costs.
MODERN HEALTHCARE first disclosed the divestiture plans in its Feb. 10 Daily Fax.
The news is particularly noteworthy given the so-called kinder and gentler acquisition strategy of the Santa Barbara, Calif.-based company.
In July 1997, Tenet publicly downplayed the differences between for-profit and not-for-profit hospitals. The company joined the American Hospital Association and said it was open to novel ways of combining its hospitals with those in the not-for-profit sector.
But even the kinder and gentler Tenet has to please its shareholders and make decisions based on the bottom line.
The company made no public announcement of its divestiture plans. Instead, Tenet's top management revealed the selloff Feb. 10 at a presentation at Salomon Smith Barney's annual healthcare services conference in New York.
"We are going to review the portfolio, and take a look in light of our business strategies," said Harry Anderson, Tenet's senior communications director .
Anderson did not specify which hospitals would be affected, but said the company hopes to find buyers within the year.
Lance Ignon, Tenet's director of media relations, said the company this year will focus on recently acquired hospitals.
In November 1998, Tenet acquired eight Philadelphia-area hospitals for $345 million from the bankrupt Allegheny Health, Education and Research Foundation based in Pittsburgh.
The chain is likely to dump hospitals that are in markets where it does not have a strong commitment or it is not a major player. Not-for-profits and financial companies could be likely buyers, said John Hindelong, a healthcare analyst.
Tenet has a high concentration of hospitals in California, Florida, Louisiana and Texas. It has two each in Alabama, Indiana, Nebraska and North Carolina; and one each in Massachusetts, Mississippi and Nevada.
"I think in the context of the history of Tenet, it's the appropriate time to step back and more or less look at the company from 35,000 feet," Hindelong said.
After nearly four years of mergers and acquisitions, Tenet needs to focus on its most profitable holdings, he said.
Tenet's action highlights one of the major differences between for-profit and not-for-profit hospitals, said Linda Miller, president of Volunteer Trustees of Not-for-Profit Hospitals, an association of not-for-profit governing boards.
Not-for-profits have a responsibility to their communities, while for-profits must please their shareholders, she said.
Tenet shareholders have not been pleased with its financial performance.
Tenet's stock price has slipped since early last year. It closed at $19.19 on Friday, its 52-week low and a far cry from its 52-week high of $40.93 set early last year.
In January, the company reported a 9.4% drop in net income for the second quarter to $125 million, compared with net income of $138 million in the year-ago quarter.
"If you're running a publicly owned business, you've got to remain profitable," Miller said. "They have a responsibility to jettison that which does not contribute to profitability."