Industry speculation is circulating that Tenet Healthcare Corp. may react to its mounting legal and financial troubles the same way that the former Columbia/HCA Healthcare Corp. did-by selling a chunk of itself.
Nearly four months after the tempest started for Santa Barbara, Calif.-based Tenet, the company has not indicated publicly any plans to sell a significant number of hospitals. In an interview with Modern Healthcare, Tenet President Trevor Fetter said the company has made no plans to sell a group of hospitals and has not generated any list of potential divestitures.
Columbia/HCA, Nashville, made a series of divestitures after the sprawling federal probe of its Medicare billing practices became widely known in 1997. Those moves included a sale of 21 hospitals to a group of not-for-profit systems and the spinoffs of two divisions with 56 hospitals that became Triad Hospitals, Plano, Texas, and LifePoint Hospitals, Brentwood, Tenn. HCA currently owns or operates 179 hospitals, or a little more than half of Columbia/HCA's 1996 peak of nearly 350.
Unlike Columbia/HCA, Fetter said, Tenet's hospitals are in focused geographic markets and most are urban facilities. Columbia/HCA's divestitures were in part an unraveling of the company's strategy to build statewide networks.
"There are people looking for us to follow exactly the HCA playbook, but the situation here is very different, so the strategies will be as well," Fetter said.
Fetter dismissed the speculation among healthcare investment bankers and competitors, saying the bankers are looking for fee-generating transactions, and the competitors are seeking to destabilize Tenet.
Still, healthcare stock analysts said they would not be surprised if Tenet is considering a major divestiture.
Gary Taylor, a hospital stock analyst with Banc of America Securities, said sales plans could come from the company's review of its pricing strategies. Tenet announced in December that it is reviewing its pricing market-by-market as it attempts to respond to the outcry over its unusually high level of Medicare outlier payments. Tenet's decisions to freeze its high gross charges, or list prices, and to adopt new policies toward outlier cases are expected to lower its outlier payments and their managed-care counterpart, stop-loss payments.
"It wouldn't surprise me if, as they've gone through that analysis, they've found assets that are particularly dependent on pricing, stop-loss and outliers," Taylor said.
Reviewing assets and shedding those considered "noncore" is a common step for new management teams, Taylor said. Fetter rejoined Tenet and was put in charge of its operations after Chief Financial Officer David Dennis resigned and Chief Operating Officer Thomas Mackey retired in November. Stephen Farber has replaced Dennis as CFO.
Lori Price, a healthcare stock analyst with JP Morgan Chase & Co., noted that Tenet already has announced that it is trimming capital spending plans, so owning fewer hospitals would allow it to focus investments on its most important hospitals. For fiscal 2003, which ends May 31, Tenet has said it expects to spend about $1 billion on capital projects, but it is estimating capital spending of only $700 million for fiscal 2004.
A smaller hospital portfolio also would conserve senior management's time and attention, something that could be critical if the various federal probes of Tenet heat up and the demands on senior managers increase, she said. "It's not a bad way to go if you're trying to get your arms around your business," Price said.
Price said she doesn't expect Tenet to meet the 5% to 8% increases in managed-care reimbursements that the company predicts in its estimates to investors. With "a reputation for price gouging" already forming in the minds of the public, Price said, Tenet can't afford a bloody, public dispute with a health plan, and that should give health plans more leverage.