PO Box 409095
Chicago, IL 60640
Length: 5 minutes, 16 seconds
Interviewer: David Burda, editor, Modern Healthcare
Interviewee: Trevor Fetter, president and chief executive officer, Tenet Healthcare Corp.
[00:00:02] Interviewer: Hello, everyone, this is Dave Burda, editor of Modern Healthcare magazine. It is Wednesday, Nov. 7th. Visiting with us today is Trevor Fetter, president and CEO of Tenet Healthcare Corp. Trevor, welcome to Modern Healthcare.
[00:00:15] Trevor Fetter: Thanks, Dave, its nice to be here.
[00:00:17] David Burda: I want to take us back a bit about your plans, maybe going back two years or so, to begin a hospital divestiture strategy. Could you tell us where you started and where youre at right now?
[00:00:31] Trevor Fetter: Sure. We actually started divesting some hospitals in early 2004. At that time Tenet had about 120 hospitals. And it was apparent to me that we had two categories of hospitals that I didnt necessarily want to own going forward. One category was rural hospitals in isolated markets that had nothing to do with the rest of the company. We settled those early on in 2000 – I guess, actually, that was 2003. And then in 2004 we announced a major series of divestitures largely concentrated in California. The thinking behind those was that many of those hospitals had substantial engineering problems that would make it difficult for them to ever comply with the seismic regulations in California. And at that time, of course, it was before some of the delays in the seismic regulations that have subsequently been enacted. But we did not want to own hospitals where we were not 100% confident of being able to comply with the seismic regulations.
[00:01:44] David Burda: How many hospitals were in that second group that you identified for divestiture?
[00:01:49] Trevor Fetter: Well, I think that ultimately totaled about 20 hospitals in California and about another 20 outside of California. The ones outside of California were either in markets where we did not believe we should stay, like Massachusetts, or they were hospitals that were really struggling; some in St. Louis, some in Philadelphia, for example. There was a corps of about 54 hospitals. The ones that we own today which we believed were the strongest, the most able to meet our quality standards, and also most able to meet the seismic standards. And that at that time in 2004 formed our vision of what we wanted the company to look like. It has been difficult, by the way, to get to that point, some of these divestitures took quite a long time.
[00:02:39] David Burda: So right now you have a stable of 54 acute-care hospitals?
[00:02:44] Trevor Fetter: Going for it, yes.
[00:02:45] David Burda: Now, weve reported on a lot of these deals. It seems that many of your buyers are physicians.
[00:02:54] Trevor Fetter: Yes, interestingly enough –
[00:02:55] David Burda: Is that a deliberate strategy to see physicians as buyers of these hospitals, or is it just a coincidence?
[00:03:01] Trevor Fetter: No, it just has worked out that way. I found it interesting, as well. If you look back at these divestitures – first of all, once we made a decision to divest a hospital we really just wanted to realize the greatest possible proceeds from the sale. And we didnt discriminate them on buyers. There were essentially two types of buyers. Those rural hospitals I mentioned were largely bought by existing public company hospital players; so health management associates, community health, Triad purchased those hospitals. The remaining hospitals I talked about with one exception the hospitals in Massachusetts were purchased by Vanguard, another private hospital company. But the rest of them were purchased either by community groups that banded together, raised money to buy the hospitals, or by physicians who then joint ventured them with the local physicians, or they just became owned by physicians.
[00:04:04] David Burda: Now, where would physicians get the capital to purchase a hospital?
[00:04:09] Trevor Fetter: Thats a good question.
[00:04:10] David Burda: Do you work out some sort of financing arrangement with them?
[00:04:14] Trevor Fetter: No.
[00:04:14] David Burda: Or do they have cash?
[00:04:15] Trevor Fetter: In a couple of instances we had to engage in some financing. But, for the most part, I think going back, I can think of several examples where the physicians had capital from outside the United States that they brought to bear. But more often the case was that there was a start-up company that was organizing a physician syndication, or something equivalent to that using private venture capital or other capital.
[00:04:48] David Burda: Last question. In a year from now how many hospitals will you own?
[00:04:52] Trevor Fetter: Weve made some announcements; for example, our hospital in Fort Lauderdale, Northridge Medical Center that is for sale. We have a couple of other hospitals that we announced previously we would sell. But I think were at a level now thats going to be stable for some time.
[00:05:12] David Burda: Very good. Trevor, thanks for spending time with us today.
[00:05:15] Trevor Fetter: Thank you, Dave.