Like HCA before it, Tenet Healthcare Corp. has formed a subsidiary to sell services to other hospitals. In light of the effects of the credit crunch and the economic slowdown that they reported last week, perhaps its no surprise that the for-profit giants are looking beyond their core business of operating hospitals.
Dallas-based Tenet said its new division is offering revenue-cycle management and clinical communications services to other hospitals. The wholly owned operating subsidiary, Conifer Health Solutions, also will provide these services to Tenets portfolio of 58 hospitals, which includes three hospitals set for divestiture.
An HCA subsidiary, National Patient Account Services, Louisville, Ky., started marketing collection services to other hospitals nearly three years ago (Nov. 19, 2007, p. 6). NPAS (commonly pronounced EN-pass) focuses on early-out patient accounts that are 90 to 120 days after the patient left the hospital.
Conifer Revenue Cycle Solutions will operate out of the seven centralized back offices that Tenet developed to serve its hospitals when it made the switch from more localized business offices five years ago, said Stephen Mooney, president of Conifers revenue-cycle business. Those centers are already serving four former Tenet hospitals and six others with no previous affiliation with the company, Mooney said.
Tenet first thought that it could make a business of these services about three years ago, Mooney said. We were seeing the market evolution of revenue-cycle management, that hospitals dont have the scale to invest in IT infrastructure, Mooney said. That was reinforced by some of the new owners of hospitals that Tenet has shed, Mooney added, as they sought to buy those services from Tenet rather than replicate them on their own.
The market for these services is highly fragmented, and the vast majority of Conifers competitors focus on narrow slices of the business rather than the full end-to-end billing and collection services that Conifer offers, Mooney said. Conifer also can draw on the business intelligence that Tenet has developed over the years in its own attempts to grapple with self-pay patient accounts, he added. Conifer also differentiates itself from NPASthe one other provider with a similar pedigreeby offering a broader range of services, Mooney said.
NPAS executives were not available to comment last week, according to an NPAS spokeswoman.
Conifer Patient Communications handles hospital communications and marketing with patients and physicians, which Tenet used to market under the name MEDContact, said Dorothy Rubio, president of Conifer Patient Communications. The service handles communications for about 100 hospitals, including Tenets portfolio.
While reporting its third-quarter earnings last week, Tenet said that Conifer Health Solutions could eventually provide the company with about 10% of its operating earnings. Tenet, however, lowered its expectations for operating earnings (specifically, earnings before interest, taxes, depreciation and amortization, or EBITDA) in 2008 and 2009, because of the slowing economy and weakness in its commercial managed-care admissions. The company also said that tighter credit has delayed its planned sale of its medical office buildings into 2009.
Tenet reported net income of $104 million compared with a loss of $59 million in 2007s third quarter, thanks to the sale of its interest in Broadlane, a group purchasing organization that Tenet founded and has now spun off. Revenue increased 5.7% to $2.16 billion.
Tenets overall admissions and outpatient visits increased but same-hospital, commercial managed-care admissions declined by 3.4% compared with the third quarter of 2007. Tenet said anecdotal evidence points to a weak managed-care environment for all operators in its markets. Like Tenet, HCA said commercial managed-care admissions shrank in the quarter despite overall growth in admissions.
Also last week, Trevor Fetter, president and chief executive officer of Tenet, purchased 100,000 shares of the companys stock at prices ranging from $2.64 to $2.71 per share, according to a securities filing. Tenets stock has plummeted from about $6.50 per share in early September, including a drop of more than 40% this week after Tenet reported lower-than-expected operating earnings. The stock closed at $2.26 per share on Nov. 7.
Nashville-based HCA, meanwhile, said it will trim capital spending and other costs in response to the slowing economy. The company also said that it will take advantage of a provision on $1.5 billion of its bonds to convert interest payments due in May 2009 into new bonds in order to provide the company greater liquidity in light of the volatile credit markets. The move will provide an additional $144 million in cash.
HCA emphasized that it has plenty of liquidityto the tune of $2 billion under its bank credit agreementsbut is just taking advantage of this provision as a precaution. I really want to emphasize to you that this is financial planning, and it is not based on our thinking that our business is going to go downhill significantly next year, because that is not the case, said Jack Bovender Jr., chairman and CEO, during a conference call to discuss the companys third-quarter results.
Richard Bracken, HCAs president and chief operating officer, said HCA will constrain capital spending in both 2009 and 2010. The company will primarily do this by limiting the pace and scope of larger capital projects, said Bracken, who will replace Bovender as the companys CEO effective Jan. 1, 2009.
For the third quarter, 166-hospital HCA reported net income of $86 million, down sharply from 2007s third-quarter net income of $300 million. The year-ago quarter, however, included a $316 million gain on the sale of facilities vs. a $50 million gain on facility sales in this years third quarter. Revenue was up 6.6% to $7 billion. For the nine months ended Sept. 30, HCA reported net income of $397 million on revenue of $21.11 billion.