Tenet Healthcare Corp.'s decision to abandon four deals in Connecticut will also end its partnership with Yale New Haven (Conn.) Health System as the state dug in its heels on for-profit entrants in the state.
The Dallas-based chain was attempting to close transactions that were initiated more than two years ago by Vanguard Health Services, which Tenet acquired in late 2013. Vanguard already had two hospitals in Massachusetts and aimed to expand its footprint in New England.
But the deal encountered roadblocks in Connecticut, which has only one investor-owned medical center, 78-bed Sharon (Conn.) Hospital, part of RegionalCare Hospital Partners. The state also has a particularly broad corporate practice of medicine law, and the trend toward physician employment has been controversial in the state.
To circumvent those restrictions, Tenet in March formed a partnership with Yale that would have created joint clinical networks, with Yale trading its brand and expertise in exchange for a minority stake in the newly acquired hospitals. As a not-for-profit entity, Yale's participation also would have created another avenue for the hospitals to employ physicians.
Earlier this month, Connecticut Attorney General George Jepsen approved Tenet's deal for Waterbury (Conn.) Hospital with 21 conditions that were largely financial. The state's Office of Health Care Access also seemed to offer its support to the takeover but imposed 47 more-arduous conditions.
In a statement, Tenet cited “the extensive list of proposed conditions to be imposed on the Waterbury Hospital transaction” as the reason it dropped its bid. Waterbury was only its first test in the state and it still had deals on the table for Bristol (Conn.) Hospital; the two-hospital Eastern Connecticut Health Network, with campuses in Manchester and Rockville; and St. Mary's Hospital in Waterbury.
Tenet praised Yale's “integrity and steadfast devotion” to the acquisitions. “It is our hope that by removing Tenet from the process at this time, these leaders will have the opportunity to identify and pursue alternatives to achieve that goal.”
Vin Petrini, Yale New Haven Health System's senior vice president for public affairs, declined to comment on whether Yale could pursue the three transactions on its own.
“We firmly believe that our planned partnership with Tenet could have preserved and supported the delivery of care in key communities whose hospitals have been challenged as a result of the enormous changes occurring in healthcare,” he said in an e-mailed statement. “It is unfortunate, but clear, that decisions of this nature have real and lasting implications for the organization and delivery of care in Connecticut.”
Jepsen issued a statement that appeared to deflect responsibility for the deals' collapse.
“I do not believe that the conditions proposed by my office—which focused on preserving and safeguarding the assets of the sale for healthcare purposes and not the day-to-day operation of the for-profit hospital going forward—were a contributing factor in Tenet's decision,” he said. “This decision raises substantial and immediate questions about the future of healthcare delivery in some of our communities.”
The entry of for-profit chains into the state has been fraught with opposition.
“Connecticut has been slow to do what we need to do and really analyze and accept the fact that the small community hospital has gone the way of the dinosaur,” said Angela Mattie, a professor at Quinnipiac University who chairs the healthcare management and organizational leadership department. “The dialogue should really be not about who's delivering care, but how we deliver care.”
In fiscal 2012, Waterbury's best year in almost a decade, it still posted an operating margin that was below the state average, or 4% compared with 4.8% (PDF) for other providers.
But the following year, it again finished in the red with a $2.3 million loss. Another loss is expected for fiscal 2014, according to public testimony (PDF) from CEO Darlene Stromstad.
“When you bring in a large entity, they bring in expertise,” Mattie said. “They also bring in economies of scale. By making entry in Connecticut so arduous, I think we're going to see small hospitals closing.”
Follow Beth Kutscher on Twitter: @MHbkutscher