Tenet Healthcare Corp.'s partnership last week with not-for-profit Baylor Scott & White Health is the latest example of the chain's departure from the traditional mergers-and-acquisitions playbook in favor of forming regional networks and positioning itself for broader payment reform.
Tenet isn't the only investor-owned hospital company using the tactic, but it is ahead of many of its peers as it seeks to develop provider networks that allow it to expand its use of insurance contracts that reward outcomes rather than high volume.
Under the deal, Baylor will own a majority stake in a group of five North Texas hospitals with Dallas-based Tenet as the minority partner. Four of the hospitals are Tenet facilities, while the fifth is a Baylor medical center. The hospitals will retain their respective leadership for operational purposes but will have a joint governing board. Tenet will adopt Baylor's charity-care and community-benefit policies.
The traditional M&A strategy for investor-owned chains has been to buy community hospitals, often in financial distress, in markets with favorable demographics. But interest in the joint-venture structure has grown as a way for for-profit operators to partner with health systems that aren't struggling and are not interested in a takeover. Moreover, a joint venture with an academic medical center provides access to a prestige-brand institution and relationships with its specialists.
“What each party brings to bear is pretty powerful,” said Rex Burgdorfer, vice president at Juniper Advisory, an investment bank that specializes in hospital M&A. “It's evidence that not-for-profit and for-profit worlds are converging. We're seeing these develop all over the country with some really high-end academics.”
Still, Tenet's alliance with Baylor Scott & White is unusual compared with other such deals. Although the deeper-pocketed investor-owned chain typically is the majority owner in such transactions, in this case, Baylor will hold the larger stake in the five hospitals. Tenet will operate its own legacy hospitals.
“It's interesting because usually the majority owner continues to operate the hospitals,” said Trey Crabb, a Nashville-based managing director at investment bank Ziegler. That seems to suggest that Tenet “has made the decision that these hospitals would thrive more under Baylor Scott & White than under Tenet,” he said.