Business

Tenet announces major sell-off

The for-profit hospital chain gets dinged by critics as it moves to sell 27 facilities.

By Katherine Vogt — Posted Feb. 16, 2004

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Tenet Healthcare Corp. has plans to sell nearly one-third of its hospitals in a major restructuring effort aimed at resuscitating the company after a year of legal and financial woes.

The for-profit chain said on Jan. 28 that it planned to sell 27 facilities, reducing its operations to focus on 69 acute care hospitals in 13 states. Nineteen of the hospitals up for sale are in California, with the others in Louisiana, Massachusetts, Missouri and Texas. The sales should be mostly complete by the end of the year.

Tenet chief executive Trevor Fetter said in a written statement that the restructuring would create a company with the potential for stronger performance over the long term. The company is taking a $1.4 billion charge against earnings in its fiscal fourth quarter to cover the sale, which Tenet says will likely lead to losses throughout fiscal 2003 and 2004.

"We have made a strategic decision to concentrate our efforts on a core group of hospitals in order to produce tangible benefits in quality and service for the communities we serve and to create long-term sustainable growth for our shareholders," he said.

Wall Street didn't express great confidence in Tenet's plan, sending the company's stock down $3 on the day of the announcement, to $13.15. And some physician critics worried that fallout from the plan could harm access to care.

Marcy Zwelling-Aamot, MD, Los Angeles County Medical Assn. president, said she is concerned that Tenet will be unable to find buyers for all of the hospitals, leading some of them to close and contributing to what she describes as a crisis in health care in Los Angeles.

"You can't mistake the idea that these hospitals might close," said Dr. Zwelling-Aamot, a specialist in internal medicine and critical care. "Tenet is a well-versed, well-greased Fortune 500 company. If they cannot make money in the health care marketplace, who is going to buy the hospital?"

Tenet has insisted that it is actively seeking buyers, and a spokesman said the company started getting inquiries from potential buyers on the day of the announcement.

One reason the California facilities are being sold is because of a state law requiring hospitals to be retrofitted to withstand some earthquakes. Fetter said the 19 hospitals for sale in California would have required a $1.6 billion investment to meet the state's seismic standards.

By comparison, the 17 California hospitals that Tenet will continue operating are expected to require less than $300 million to meet seismic standards.

Darren Lehrich, an analyst with SunTrust Robinson Humphrey, said it may be difficult for Tenet to find buyers for the hospitals that require work for seismic standards.

"This is a clear signal that [Tenet is] not in the position financially to shoulder the capital requirements associated with the seismic retrofitting that those facilities will need. So I think they will be giving away a number of those hospitals," he said.

Tenet spokesman Steven Campanini scoffed at the suggestion that the company was selling the hospitals as a means of generating cash to offset legal costs or to pay for a settlement in one of its legal battles. He said the divestiture of all 27 hospitals is expected to generate total net proceeds of about $600 million, much of which will be in the form of tax benefits.

Tenet has been the subject of several government probes in the last year or so, including investigations of its Medicare billing practices and its physician relocation agreements. In August, the company agreed to pay $54 million to settle claims that hundreds of unnecessary cardiac procedures were performed at one of its hospitals, Redding (Calif.) Medical Center. Tenet did not admit any wrongdoing. Redding Medical Center was put up for sale in December 2003.

Campanini said that Tenet is in the midst of a turnaround and its managers are optimistic about the company's future.

But Lehrich said Tenet still has much work to do before it can recover from its woes. "We're still in the very early stages of what looks to be a pretty long road toward a turnaround, and this is one more step that will bring their portfolio of hospitals a little more consistency," he said. "I think the bottom line is it's still very early in Tenet's recovery."

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