Tenet Healthcare has decided to not sell the company, following CEO Trevor Fetter’s departure, reported Reuters. Instead, the third largest investor-owned U.S. health system will focus on finding a permanent CEO.
In its preliminary Q3 results, the for-profit health system announced it would cut 1,300 jobs, including reducing its regional management layer, to save $150 million in operating expenses.
The company also disclosed a net loss of $366 million in the third quarter. Tenet said its Adjusted EBITDA will be about $507 million in the third quarter. The third quarter was negatively impacted by about $40 million in three areas: $30 million in lower revenues and higher expenses connected to Hurricanes Harvey and Irma, $8 million in lower-than-expected revenues from the Texas Medicaid program and about $2 million in lower-than-expected revenues from the Florida Medicaid program that was because of changes to the low-income pool program.
The Dallas-based health system with 77 hospitals, 460 outpatient centers, 20 short-stay surgical hospitals and 130,000 employees across 47 states, has experienced an eventful year. It’s lost millions of dollars, sold facilities, saw board members leave, muddled through layoffs and witnessed its CEO announce his departure and then leave sooner than initially expected.
Fetter said in August that he was leaving the company after reporting that Tenet lost $56 million in the second quarter. The CEO said he would stay on until March 2018, but instead Fetter announced his immediate departure this month. While Tenet searches for a successor, Executive Chairman Ronald Rittenmeyer will serve as CEO.
Saddled with billions of dollars in debt, Tenet has been exploring a possible sale. Though the health system is now reportedly not selling the company, the Dallas-based system is divesting eight U.S. hospitals in four markets and its nine U.K. facilities. The company hopes those sales bring in about $1 billion. The system also left the Chicago market by selling MacNeal Hospital to Loyola Medicine and announced it will close its Abrazo Maryvale Campus in Arizona this year.
Tenet is still looking into other options to shed $15 billion debt and improve its value. One way is through a cost reduction program, which Tenet announced during its Q3 preliminary results. Rittenmeyer said the program will include structural changes that are “all intended to reinforce accountability, improve agility and speed decision making.”
Tenet said about 75% of the savings will come through the company's hospital operations segment, including eliminating a regional management level and streamlining corporate overhead and centralized support functions. “We believe these changes will help us drive organic growth, expand margins, and better support our hospitals and other facilities in delivering higher levels of quality and patient satisfaction,” he said.
Tenet is far from the only health system, both for-profit and nonprofit, trying to thrive in a healthcare environment with lower inpatient numbers, reduced reimbursements and regulatory challenges. Fitch Ratings recently released a report that looked at acute care hospitals, namely Tenet, Community Health Systems, HCA Healthcare, LifePoint Health and Universal Health Services.
Fitch Ratings said federal and government regulations and political decisions are the biggest risks for healthcare’s operating profile. The report also said hospital revenues are affected by consumer finances, such as high-deductible health plans and health savings accounts. They have saddled members with more out-of-pocket costs, forced hospitals to chase down payments from patients, which is harder than getting payments from insurers, and lead to bad debt.
Gregory Hagood, senior managing director at SOLIC Capital Advisors, recently told Healthcare Dive that health systems looking to sell are struggling to shed debt. New investors don’t want to pay top dollar for a struggling community hospital with debt. “The biggest challenge so far is that they have struggled to get value for those assets to effectively repay that debt,” Hagood said.
Richard Gundling, senior vice president of healthcare financial practices at the Healthcare Financial Management Association, recently told Healthcare Dive that health systems are trying to protect themselves against a changing industry. Market share is no longer as important as flexibility and efficiency.
“As all of these changes are occurring, the systems are strategically moving and gathering their assets to be able to deal with expected changes,” Gundling said.