Tenet and CHS resume divestitures, operating losses

Tenet Healthcare Corp. and Community Health Systems each said they will sell more hospitals as their operating losses piled up in the first quarter.

Dallas-based Tenet said Monday it had agreed to sell its three hospitals in Houston to HCA Holdings for about $725 million. The health system said in January that it intended to focus its capital and management resources on ambulatory care and hub markets where it has first- and second-place market share or a strong, profitable niche.

The divestiture comes on the heels of a first-quarter operating loss of $52 million.

The earnings report wasn't all bad news. Tenet said it had reached a new multi-year agreement with Humana to restore in-network access to all Tenet providers between June 1 and Oct. 1. Tenet had been without a Humana contract since late last year, said Brian Tanquilut, senior healthcare analyst Jefferies & Co.

Tenet also is accelerating the purchase of USPI, the giant ambulatory surgery center chain, bumping its ownership from a majority share to 80% by July.

CHS posted an operating loss of $199 million in its first quarter on revenue of $4.5 billion, the company said Monday. Admissions fell more than 1% in the first quarter at the 154 hospitals that it owned a year ago.

Struggling CHS is shedding hospitals to reduce $15 billion of debt.

CHS also said Monday that it has signed a definitive agreement to sell 88-bed Lake Area Medical Center in Lake Charles, La., and its associated assets to subsidiaries of Christus Health. The transaction is expected to close in the second quarter of this year, subject to customary regulatory approvals and closing conditions.

While other health systems have been looking to consolidate via megamergers, Tenet and CHS both have been eyeing divestitures recently. In December, CHS Chief Financial Officer Larry Cash said his company expects to raise about $1.2 billion through the sale of 17 hospitals, most of its home health business and non-hospital real estate by early next year.

Tanquilut said Tenet will redeploy the $725 million from the divestiture of its Houston hospital to pay for the larger USPI stake.

Tenet is looking to divest hospitals if it can't be first or second in volume in a particular market, Tanquilut said. Tenet was a distant fifth or sixth in Houston, behind Memorial Hermann, HCA and Methodist, among others.

Nashville-based HCA already owns 10 hospitals in Houston, in addition to eight surgery centers, two free-standing ERs and 10 imaging centers, the company said in a release.

HCA is the nation's largest investor-owned hospital company with 171 hospitals.

Tanquilut said Tenet's same-facility admission would have dipped less than 1% instead of the 2.5% reported Monday if not for the Humana contract issue and the first quarter of 2016 benefiting from an extra day on leap year.

He said CHS is making progress in reducing debt through divestitures, a strategy that is expected to continue into the year.