Tenet, Ascension, Dignity become partners in Tucson

Tucson, Ariz., is less than two hours south of Phoenix, but the cities have not overlapped on healthcare. That separation began to dissolve last month, however, when Banner Health, which owns 12 hospitals in greater Phoenix, signed a $1 billion deal to buy the University of Arizona Health Network, whose two hospitals are major players in Tucson.

Last week, another deal was announced that would link the two cities. Ascension Health, headquartered in St. Louis, said it plans to transfer part of its ownership in Tucson-based Carondelet Health Network into an unusual three-way joint venture that includes Tenet Healthcare Corp. and Dignity Health.

Carondelet, which will retain its Catholic identity under the deal, includes 449-bed St. Joseph's and 429-bed St. Mary's hospitals, both in Tucson, as well as 56-bed Holy Cross Hospital in Nogales, the Carondelet Medical Group, the Carondelet Specialist Group and ancillary businesses.

Tenet last year acquired five Phoenix-area hospitals as part of its takeover of Vanguard Health Systems, based in Nashville. San Francisco-based Dignity has three hospitals in the Phoenix region.

Dallas-based Tenet will hold the majority stake in Carondelet, while Ascension and Dignity will be minority partners. The parties are conducting due diligence but did not disclose a timeline for moving forward.

Across the country, providers are organizing into narrow networks that allow them to better negotiate with insurers and form clinically integrated organizations. It's been happening rapidly in Phoenix, where Tenet and Dignity already participate in the Arizona Care Network accountable care organization.

But Tucson had been behind the curve, said Bill Melville, senior analyst at HealthLeaders-InterStudy. “This deal is just as important to Tenet and Dignity as it was to Ascension,” Melville said. “With Banner making a big move into Tucson, they almost had to do this.”

Arizona has been a challenging state for Ascension. While the system did not break out revenue for Carondelet in its most recent annual report, its utilization statistics showed a 7.5% decline in acute-care discharges between 2012 and 2013 in Tucson and Nogales. In contrast, admissions increased 1.3% across Ascension hospitals overall.

With this deal, Tucson will retain its three major providers, with independent TMC HealthCare as the third player. But two of the parties will have stronger ties to the larger Phoenix market.

Follow Beth Kutscher on Twitter: @MHbkutscher