SSM Health, the growing four-state health system, will expand its operations in St. Louis in a proposed deal with St. Louis University.
SSM Health, which has its headquarters in St. Louis, would acquire 356-bed St. Louis University Hospital under the deal, and St. Louis University would become a minority owner in SSM Health's St. Louis operations.
But first, Tenet Healthcare Corp. must sell the St. Louis University Hospital back to the university. The Dallas-based hospital operator simultaneously announced plans to do so on Monday.
Terms of the transactions were not disclosed.
The deal is among many lately to shuffle and consolidate local markets as some systems leave markets where they lack leverage and others seek to strengthen their position.
Tenet acquired the teaching hospital in 1998; its sale would leave the investor-owned company with one hospital in the market. SSM Health will operate nine St. Louis-area hospitals after the deal closes.
SSM Health is No. 2 in market share in the St. Louis area behind BJC HealthCare. BJC had 34% of the hospital discharges in the area in 2014, and SSM had 21%, according to documents BJC filed this year for potential bondholders.
Because of SSM Health's larger size, the acquisition “gives them strategic advantages that Tenet could not extract from this one particular asset,” said Walt Mayo, an analyst for R.W. Baird. “Tenet is refocusing its strategy, and part of that means getting out of sub-scale markets.”
Tenet's remaining hospital, Des Peres Hospital, is located in a suburb of St. Louis with favorable insurance coverage, Mayo said.
But whether Tenet will keep that hospital is uncertain in light of the company's stated desire to be the largest or second-largest player in its markets.
Tenet CEO Trevor Fetter told analysts in February that the company is “committed to building leadership positions in the markets in which we compete” with deals or possible deals to buy, sell or joint-venture on assets. Fetter said the company ranks first or second in 21 of 31 markets.
Tenet is expanding its ambulatory business in the St. Louis area and elsewhere with a planned joint venture with United Surgical Partners International, a Dallas-based ambulatory surgery center partner. USPI holds about 4% of the ambulatory surgery center market. The company has more than a dozen centers in the St. Louis-area.
St. Louis University said it did not want to operate a hospital and selected a long-standing partner to acquire the academic hospital.
SSM Health Care will now review its strategic plan and capital budget to identify where to invest and how to organize services, said William Thompson, the system's president and CEO. The university hospital will add tertiary and high-level trauma care to SSM Health Care's network of community hospitals. The system will also train future doctors, nurses and other healthcare professionals.
SSM Health Care operates in Illinois, Missouri, Oklahoma and Wisconsin. In September 2013, SSM acquired Dean Health System, an integrated delivery system in south central Wisconsin in a dealt that expanded SSM's annual revenue by 50%.