Tenet Healthcare Corp. is set to unload at least 18 hospitals, but the bidding process is moving more slowly than expected.
According to a list of those hospitals obtained by MODERN HEALTHCARE, most are in areas where the company does not have significant market presence or faces strong competition. There are seven in Texas, three in Florida, three in Arizona, two in Indiana and one in each of three states-Louisiana, Missouri and Nevada (See map).
In keeping with the company's stance since it disclosed its intention to sell some hospitals in February, Tenet declined to confirm the hospitals on the list. It had earlier said that five hospitals in Arizona, including two that are not on the list of 18 facilities, were for sale. They are 59-bed Community Hospital Medical Center in Phoenix and 80-bed Tucson General Hospital.
The sale of the Tenet hospitals is reminiscent of Columbia/HCA Healthcare Corp.'s sale last fall of 21 hospitals to a consortium of eight not-for-profit buyers for a total of slightly more than $1 billion. However, observers have predicted Tenet is unlikely to get that much for its group of hospitals, partly because of the market reaction to the high price the not-for-profits paid last year to rid their respective markets of Columbia.
It is unclear whether Tenet will sell the hospitals in groups or one by one.
Tenet originally hoped to sell the hospitals to one buyer, but few providers, if any, are willing to digest the whole group, said one analyst.
"I would be surprised if someone purchases all of them," said Victor Seoane, research associate at Atlanta-based Robinson-Humphrey Co. "It's a widespread portfolio."
Still, the group of hospitals presents an opportunity for some of the smaller hospital companies trying to get a foothold in their markets, or to those who are trying to start investor-owned hospital companies, Seoane said.
Industry sources said former Columbia Chairman R. Clayton McWhorter has bid on a substantial number of the Tenet hospitals, possibly with financial backing from New York private equity capital firm Joseph Littlejohn & Levy.
MacWhorter was not available for comment. "We don't talk about that at this stage," said Paul Levy of Joseph Littlejohn.
In some markets, the likely buyers are large not-for-profit health systems, while in others, a for-profit company may be the most likely fit, analysts have said. For example, King of Prussia, Pa.-based Universal Health Services, a for-profit company, could be a potentially strong candidate for 184-bed Lake Mead Hospital Medical Center, in North Las Vegas, Nev., because it already owns two large hospitals in Las Vegas: 225-bed Desert Springs Hospital and 365-bed Valley Hospital Medical Center.
Universal Chief Financial Officer Kirk Gorman declined to comment about specific acquisitions, but he said the company would be interested in expanding in the Las Vegas market. The company also operates four acute-care hospitals in Texas.
Sources said Columbia is interested in several properties. For example, Columbia already has 11 hospitals in the greater Tampa Bay, Fla., area. Columbia spokesman Jeff Prescott declined to comment about specific potential acquisitions.
Tampa General Healthcare, the not-for-profit teaching hospital for the Univeristy of South Florida College of Medicine in Tampa, may also bid on the Tampa hospitals, John Dunn, hospital spokesman, confirmed.
Another potential bidder, especially in the Phoenix market, is private for-profit Vanguard Health Systems. Last week, Keith Pitts, chairman and chief executive officer at Mariner Post-Acute Network, announced he was leaving to join Vanguard's management team. He had been CFO at OrNda HealthCorp when Vanguard's current chairman, Charles Martin Jr., was at OrNda's helm.
A spokeswoman said Martin declined comment on potential acquisitions.
Tenet postponed the deadline for bids from prospective buyers from the beginning of June to the end of the month, said Harry Anderson, Tenet's director of strategic communications.
"We're in a period where potential bidders are looking at the properties, studying financial data," Anderson said.
Of the 18 hospitals, only four were unprofitable, according to the most recent financial data available from HCIA, a Baltimore-based healthcare information firm.
The four are Lake Mead, which lost $1.7 million in 1997; 265-bed Columbia (Mo.) Regional Hospital, which lost $1.1 million in 1997; 150-bed Trinity Valley Medical Center in Palestine, Texas, which lost $2.2 million in 1997; and 148-bed Town and Country Hospital in Tampa, Fla., which lost $526,183 in 1997.
Overall, the 18 hospitals posted net income of roughly $76.5 million in 1997, the last year for which complete figures for the hospitals were available. They reported total patient revenues of about $1.8 billion. That equates to a profit margin of about 4.25%.
"The majority of (the hospitals Tenet is selling) are profitable, but they don't have the margin or opportunity for margins they would like to see in their markets," Seoane said.
Tenet first disclosed plans to divest the hospitals in February, and healthcare analysts have applauded the move, noting that the company has experienced several major mergers and acquisitions, which it needs to digest.
In November, Tenet bought eight Philadelphia-area hospitals for $345 million from the bankrupt Allegheny Health, Education and Research Foundation, based in Pittsburgh.
"It's an appropriate strategy for the company over the long term," Seoane said. "Over the short term, if you look at the numbers, it's probably slightly dilutive to them, but that may be offset by their ability to focus on their other properties and improve operations at their other properties."
Tenet, which now owns 129 hospitals in 18 states, reported net income of $386 million for the nine months ended Feb. 28, down 4% from the $402 million reported in the same period of last year. Revenues for the 1999 nine-month period were $7.9 billion, up 8.4% from $7.3 billion in 1998.