Tenet to Close or Sell 14 Hospitals in an Overhaul
In an effort to bolster profit and restore investor confidence, Tenet Healthcare Corp. said Tuesday that it would close or sell 14 hospitals, cut expenses by $100 million and adopt certain accounting changes.
One of the hospitals Tenet plans to shed is in California -- Santa Ana Hospital Medical Center, a 69-bed hospital that has underperformed financially and will be shuttered. The remaining 13, spread through seven states, are expected to fetch as much as $900 million. Their sale would leave the Santa Barbara-based chain with 100 hospitals, including 39 in California.
The retrenchment and other moves announced Tuesday are part of a broad overhaul of operations in the wake of numerous government investigations of Tenet’s Medicare billing and other business practices.
Tenet, the nation’s second-largest for-profit hospital chain, said the actions would help it operate more efficiently.
The company said that its expense-cutting steps would include an undisclosed number of layoffs and a reduction in travel costs and other corporate expenses.
Tenet said it also would dispose of two of its three Gulfstream corporate jets.
“I love the fact they are selling the jets,” said Sheryl Skolnick, a managing director of Fulcrum Global Partners, which provides investor research. She and other analysts have criticized Tenet for excesses, including extravagant corporate conferences at resorts and lavish pay and perks for top brass.
“The level of arrogance that exists at this company still distresses me,” Skolnick said. Specifically, she said, Tenet management needs to address questions in a more forthright manner. And she and some shareholder groups called on the company to appoint independent board members on Tenet’s audit and compliance and ethics committees.
Tenet spokesman Harry Anderson responded that the board is hard at work on a variety of matters. “Everything is on the table,” he said.
Tenet’s board, which met last week in Los Angeles, gave approval to two financial reporting changes announced Tuesday. The company said it would begin counting employee stock options as an expense on its income statements, adopting a move that a handful of major companies have taken in reaction to criticism.
Tenet also said it would switch its financial reporting from a fiscal year to a calendar year to allow investors to better compare its performance against similar companies, which overwhelmingly report their earnings by calendar year.
Tenet did not estimate how much money the company would save by divesting itself of 14 hospitals, which together employ 8,693 of the company’s total 116,500 workers.
Combined, these hospitals have annual revenue of $933 million, according to Tenet. The hospitals include four in Arkansas; two each in Pennsylvania, Tennessee and Missouri; and one each in Texas, Florida and Nevada.
Although sources said these 14 hospitals are by and large profitable, they generally lag behind the overall earnings performance of the Tenet chain and in some cases lack the negotiating clout with insurers that the company has in key markets such as Southern California.
The divesture of Tenet’s Missouri hospitals also could help the company resolve an antitrust investigation by the federal government.
The Santa Ana hospital to be closed reported an operating loss of $914,000 for the year ended Sept. 30.
Tenet said it would move its services to other hospitals in Orange County, including the nearby Garden Grove Hospital and Medical Center. Tenet said the Santa Ana facility’s lease expires in August and the landlord has chosen to sell the property for another use.
“They are selling or consolidating hospitals that may be underperforming or they see no strategic reason to keep,” said Clifford Hewitt, a health-care services analyst with Legg Mason Wood Walker in Baltimore. Hewitt, who has a “buy” rating on Tenet stock, said the company has “been doing a lot of things I view as positive” since its problems surfaced last fall.
Analysts predicted that Tenet would get anywhere from $800 million to $900 million for the hospitals; proceeds would be used mostly to buy back shares, a move analysts said would be welcomed by investors. In December, the company announced a $30-million stock buyback program.
Tenet’s stock has lost about 60% of its value since October. On Tuesday, shares rose 4.7%, or 80 cents, to close at $18 on the New York Stock Exchange.
Despite the retrenchment announced Tuesday, Tenet still is moving forward with a $35-million acquisition of the USC/Norris Comprehensive Cancer Center and Hospital in Los Angeles, a 60-bed facility with a national reputation for being on the cutting edge of cancer research. Tenet has managed that facility for five years.
The fate of a Tenet hospital in Southern California -- Daniel Freeman Marina Hospital in Marina del Rey -- is up in the air. Tenet has proposed shuttering the 166-bed facility, but community resistance and the state’s attorney general’s office effectively have blocked the closure.
