Dallas-based Tenet Healthcare has sold 14 hospitals this year for more than $4.8 billion combined as it continues to transform its portfolio into a more value-based care enterprise with a leading specialty care platform.
The for-profit system sold nine hospitals in California and South Carolina in the first quarter. On Sept. 30, it completed the sale of its 70% ownership interest in Birmingham, Ala.-based Brookwood Baptist Health to Orlando (Fla.) Health.
"All of the sales that we have executed on have been at high multiples to reflect the operational improvements that we have made to each of these facilities over the last several years," CEO Saum Sutaria, MD, said during the company's Oct. 29 earnings call. "As a result of these sales, our current hospital portfolio has an enhanced return profile, more attractive geographies for us and our business model, and higher expected returns … should result."
The hospital sales has allowed Tenet to significantly improve its leverage ratio, and the company is committed to a deleveraged balance sheet going forward.
"We are well positioned to create value for shareholders through stronger free cash flow generation. Our transformed portfolio provides us with a high degree of capital and financial flexibility," Dr. Sutaria said.
Conifer Health Solutions, Tenet's revenue cycle management subsidiary, retained or expanded its relationship with the acquirers of these hospitals, demonstrating the value the company offers providers and revenue cycle management, according to Dr. Sutaria.
After selling hospitals, Tenet often enters into transition service agreements to support the divested hospitals for an extended period.
"We approach these agreements with the mindset that we should support the transition hospitals and our sale partners as thoroughly as if we still owned them," Dr. Sutaria said. "This approach is important, especially since we also maintain some long-term Conifer relationships with these partners. We take this responsibility very seriously."
Tenet executives said that some of the Conifer expansion opportunities with divested hospitals are notably larger than others and require significant investment — similar to acquiring a new customer.
"This will shape Conifer's profile in the broader market," Dr. Sutaria said. "We will make investments to onboard this business in 2025, with the goal of reaching Conifer's typical performance levels over time. For the remaining divestitures, the expansions have been more straightforward to onboard."
Similar to executives at Franklin, Tenn.-based Community Health Systems and Nashville, Tenn.-based HCA Healthcare, Tenet's leaders also shared trends they are seeing as a result of CMS' expansion of the two-midnight rule. The rule requires patients to be admitted as an inpatient if the treating clinician determines they require hospital care that extends beyond two midnights — rather than being held under observation status as an outpatient.
"With the two-midnight rule, the process of fully adopting the guidance in the Medicare Advantage market is still underway. We haven't seen full adoption yet," Dr. Sutaria said. "For us, this rule has contributed somewhere between 50 and 100 basis points to our overall admissions growth"
Tenet leader said this was less than expected, suggesting that payers have not fully adopted the two-midnight rule, and ties back to ongoing issues of disputes and denials — particularly in the Medicare Advantage market.
"We are very disciplined, compliant and precise in our coding practices. Over the past few years, the increase in disputes and denials across the industry has driven up administrative costs significantly for both payers and providers," Dr. Sutaria said. "While we've made the right investments and have the necessary capabilities within Conifer to mitigate these impacts for us and our clients, the industry at large still faces high costs. Ultimately, a solution is needed, as this is just wasted administrative time and expense."