Tenet Healthcare has officially scrapped its plan to spin off its $1.3 billion revenue-cycle subsidiary, Conifer Health Solutions, into a separate, publicly traded company.
The Dallas-based hospital chain made the announcement Tuesday after long hinting that it was leaning in that direction. Consequently, analysts who follow investor-owned Tenet were not surprised by the move, and agreed it's the right decision for the company. Tenet's stock received a boost, as a result of the news.
Tenet said its board decided, in consultation with legal and financial advisors, to keep Conifer in-house after considering its financial improvement in recent years, along with future growth prospects.
"We believe that continuing to build on our progress with Conifer will provide greater returns for Tenet's shareholders," Ron Rittenmeyer, Tenet's executive chairman, said in a statement.
Rittenmeyer divulged that Tenet was rethinking the spin-off on an earnings call last month. He said when Tenet first announced a potential Conifer sale in 2017, it did so under intense pressure from investors.
"We agreed to do this because the army was at the door," Rittenmeyer said in February.
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A.J. Rice, a healthcare services analyst with Credit Suisse who covers Tenet, said Tenet will have to expand Conifer's base of customers well beyond its two biggest customers, Tenet and not-for-profit CommonSpirit Health, which together have about 200 hospitals.
The company might have an opportunity to do that eventually too, as the COVID-19 pandemic is subsiding, Rice said. The crisis that began in 2020 made it difficult for health systems to undertake major revenue-cycle management changes. Not only that, but Conifer also has a relatively new management team.
"I'm sure they have aspirations to see accelerated growth coming out of the pandemic and get that under their belts before they contemplate something like this again," Rice said.
Rice thinks Tenet could revisit the idea of offloading Conifer in another two to three years once it's built momentum.
Analysts with Jefferies called Tenet's decision "a reasonable move" in their own analysis, noting that the current stock market volatility makes going public challenging.
"The realization of shareholder value from such a move comes with a high level of uncertainty," they wrote.
