(Story updated at 6:55 p.m. ET.)
Birmingham, Ala.-based Baptist Health System, seeking to position itself for a future of value-based healthcare, expects to form a joint venture with a subsidiary of Dallas-based Tenet Healthcare Corp. that will include all of Baptist's hospitals and related businesses.
Baptist and Tenet signed an exclusive nonbinding letter of intent Monday and have entered a due diligence period. They said a final agreement could be reached by spring 2015. The combined company would include Baptist's four hospitals—Citizens Baptist Medical Center, Princeton Baptist Medical Center, Shelby Baptist Medical Center and Walker Baptist Medical Center—and the Tenet-owned Brookwood Medical Center, all of which are in the Birmingham metropolitan area.
The two companies have yet to decide what percentage of the venture each organization would own. Because Tenet is a for-profit company, the venture will be for-profit, but Baptist's share of the proceeds will be tax-exempt because the health system is not-for profit, said Baptist CEO Keith Parrott. The word “Baptist” will be included in the name, he said.
The combined system would include 77 primary- and specialty-care clinics, about 7,300 employees and about 1,500 affiliated physicians, according to the release.
Parrott and Garry Gause, Tenet's Southern Region CEO, said in an interview the deal will allow both companies to transition towards improving delivery of care, through integrated organizations, population health management and direct contracting with employers.
“This puts the Birmingham market as one of the core markets for Tenet in the long term. With that comes investment from a capital standpoint and also [it] will enable us to become innovative with some of the care models we can pursue for central Alabama,” Gause said.
Parrott said that Tenet is a particularly strong candidate for a partnership because it has a history of partnering with regional systems while ensuring that their local brand and religious affiliations, if any, remain in tact. After visiting Baptist Medical Center in San Antonio (unaffiliated with the Birmingham system), which was acquired by Tenet when it acquired Vanguard Health Systems, Parrott said he was pleased to see that the hospital's religious mission and identity remained a significant part of the corporate culture.
“Tenet doesn't diminish the Baptist name or value,” Parrott said. “They place value in the local brand and I think that's working well for them.”
A minimum of $250 million, based on the needs of local facilities, will be invested over the next five years in the Birmingham market as a result of the venture, Parrott said.
Tenet recently abandoned four deals in Connecticut after facing difficult regulatory conditions, in part due to the company's for-profit status. In losing the deals, Tenet also lost a partnership it formed with Yale New Haven (Conn.) Health System.
Tenet's stock closed Tuesday at $48.36 a share, down 90 cents, or 1.83%, from Monday's closing price.
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