Cedars-Sinai May Lease 2 Tenet Hospitals
In a sign of the struggles facing even the most successful independent hospitals in a cutthroat health-care market, Cedars-Sinai Medical Center plans to take over management of two smaller hospitals in West Los Angeles from Tenet Healthcare Corp., officials said.
Under the proposed deal, nationally prominent Cedars-Sinai would assume management of Century City Medical Center and Midway Hospital, two small hospitals owned by Tenet, the nation’s second-largest for-profit hospital chain.
The deal would increase Cedars’ market share on the Westside to roughly 20%, officials said, creating a powerful network of hospitals that would compete for patients with prestigious UCLA Medical Center and other rivals in West Los Angeles and the San Fernando Valley.
The greater size would enhance Cedars’ ability to negotiate favorable deals with medical groups and managed-care insurers. Cedars officials, noting that the three hospitals have some overlapping services, said the deal would also allow it to develop more efficient ways to deliver medical services.
Instead of purchasing the two hospitals outright, Cedars has agreed to lease the facilities from Tenet under a 20-year deal, hospital officials said.
The companies are expected to announce the signing of a letter of intent today. But the deal would be subject to a final agreement and various regulatory approvals.
The deal runs counter to recent industry trends in which large for-profit hospital chains have swallowed up dozens of nonprofit hospitals.
Directors of nonprofit Cedars had rejected an earlier plan by Santa Barbara-based Tenet to buy a large ownership stake in the hospital, a Tenet official acknowledged. Another industry source said Cedars also rebuffed earlier bids by Columbia/HCA Healthcare Corp., the nation’s biggest chain and the subject of a federal investigation.
While many nonprofit hospitals have struggled financially in recent years, Cedars is in a “very strong financial position,” said Thomas M. Priselac, the hospital’s chief executive. A favorite of Hollywood celebrities, Cedars is bolstered by generous charitable donations from rich and famous benefactors.
As more patients migrate from traditional insurance plans to managed care, Westside hospitals, which once relied on patients with generous insurance policies, have slashed costs and focused on attracting HMO patients.
“All of us in health care are being asked to respond to the competitive environment,” Priselac said.
Century City Hospital, once one of the most profitable hospitals in the Tenet chain, has struggled in recent years, said Thomas Mackey, a Tenet executive vice president.
“As managed care has increased its penetration, Century City has moved to a break-even position today,” said Mackey.
Separately, Cedars and Tenet said they plan to form a new for-profit venture that would explore “a wide variety of activities.” One would be to seek a state license to operate a modified form of health maintenance organization.
Tenet, which operates more than 30 hospitals in Southern California, also hopes Cedars’ top-notch reputation will rub off, helping it to attract managed-care contracts, Mackey said.
“Cedars becomes our West L.A. hospital for presenting ourselves to the marketplace,” he said.
John Edelston, a Woodland Hills-based managed-care consultant, speculated that Cedars might seek to convert Midway or Century City into specialized rehabilitation or skilled nursing facilities.
He said the deal would also reduce competition in the marketplace, giving Cedars more clout to resist managed-care insurers’ demands for steeper discounts.