Tenet Healthcare Corp.'s $4.3 billion bet on Vanguard Health Systems is about three things: building size and scale, particularly in fast-growing Texas; squeezing additional revenue from Vanguard's hospital and ambulatory-care portfolio; and becoming a bigger and better player in managed care and population health management.
While the first two moves come straight out of any chain's playbook, the third is a riskier wager. Dallas-based Tenet wants to be ready for the likely shift from fee-for-service to payment for outcomes and value under healthcare reform.
Nashville-based Vanguard, the smallest publicly traded hospital operator, has been a leader in the accountable care organization movement among investor-owned systems. Vanguard's Detroit Medical Center is one of the CMS' Pioneer ACOs and was an early participant in the Acute-Care Episode Demonstration Project, a bundled payment initiative for cardiovascular and orthopedic procedures. Vanguard also operates five health plans around the country, covering 237,000 lives.
The deal for Vanguard is not only one of the largest deals among investor-owned chains in recent years, it also comes after several years when Tenet had been relatively quiet on the acquisition front. The chain last year spent just $211 million on acquisitions, according to its annual report, all of it on outpatient-care centers, physician practices and boosting its revenue-cycle management capabilities. It spent $84 million the year before.
“In Tenet, you have a company that has focused on organic growth,” said Joe Lupica, the Phoenix-based chairman of consulting firm Newpoint Healthcare Advisors. “They took themselves out of the acquisition market and then approached it very gingerly.
”While for-profit systems generally have approached the ACO experiment with caution, Tenet's proposed deal for Vanguard is a sign that at least one investor-owned chain is willing to bet on alternative payment models, even though there's no certainty yet that they will deliver cost savings and quality improvements. The other major investor-owned chains, particularly HCA and Community Health Systems, have mostly kept their distance from ACO efforts.
“Hospitals have to become experts at risk management … building networks without holes,” Lupica said. “We can't just focus on dots on a map. I think it's more than geography here—it's about expertise.”