Tenet to cut regional management layer in reorganization

Tenet Healthcare Corp. is eliminating its regional management layer in a restructuring effort aimed at creating a more agile organization, according to the hospital chain.

As the company endures softening hospital admissions, rising deductibles and other headwinds that have compressed operating margins across the industry, Tenet will reduce some of the bureaucracy to try to streamline operations and cut costs, according to company spokesman Dan Waldmann.

Financial analysts are seeing this as the start of an overdue management reorganization.

"These changes will...allow us to better support our hospitals in delivering care to patients and providing health services to communities," Waldmann said.

He did not share any specifics about the number of positions affected or how much cost savings the reorganization would net. Tenet plans to have the restructuring done by the end of October and will have more details by its third-quarter earnings call scheduled for Nov. 6, he said. Its regional management layer includes C-suite executives in its Eastern, Texas and Western regions who act as middlemen between individual markets and centralized support functions.

Analysts and investors have questioned why operating margins at Tenet hospitals didn't align with its competitors but hadn't heard from the company on how it would cut costs, said Mizuho Securities analyst Sheryl Skolnick.

"We've been told (margins) would get better and have heard a series of excuses in acquisitions, asset sales and health plan losses, but haven't been told if there is a strategy to turn that around," she said. "A prudent elimination of an excess management layer would be very welcome."

Tenet is the nation's third-largest investor-owned hospital chain with 77 hospitals. The company is already shedding low-margin hospitals to reduce debt and focus on healthier operations. Investors have debated breaking up Tenet's three main business lines or leaving the company whole.

Tenet CEO Trevor Fetter announced last month that he will step down in March or when a successor is appointed and that the company will also shake up its board. Fetter came under pressure when activist hedge fund Glenview Capital Management resigned its two board seats in August and looked to push change from the outside.

"Things needed to be done and it presumably begs the question, 'Why did it take someone resigning from your board and essentially lurking out there as an activist proxy fight?' " Skolnick said.

The company reported a $56 million operating loss in its second quarter amid a 1.4% admissions decline. Tenet's free cash flow turned negative over each of the past two quarters.

An​ edited​ version​ of​ this​ story​ can​ also​ be​ found​ in​ Modern​ Healthcare's​ Oct.​ 9​ print​ edition.