- Tenet Healthcare is spinning off its revenue cycle management arm Conifer into an independent publicly traded company, the hospital operator announced Wednesday. Tenet shares were up in early morning trading following the news.
- Tenet first said it was mulling the sale of Conifer in December 2017 amid a cost-reduction program in the wake of struggling financial performance that year. The move is expected to be completed by the second quarter of 2021.
- The Dallas-based health system said Conifer's current CEO is stepping down and a search for a permanent replacement will begin. The spinoff doesn't require a vote from Tenet shareholders and is supported by Common Spirit, which has a minority stake in Conifer.
When Tenet first said it was considering shedding Conifer, it faced investor pressure after weak earnings performances and mounting debt. Pushing off the RCM arm was seen as a potential stabilization move, although executives maintained they were keeping all options open.
UnitedHealth Group was reportedly exploring a purchase of the subsidiary about a year ago.
Since then, Tenet has staunched the bleeding somewhat, paring down debt and selling off hospitals. The company beat Wall Street expectations in the first quarter of this year in what CEO Ronald Rittenmeyer called "a great quarter."
In that earnings report, Conifer reported $146 million in net operating revenue, down slightly from the year-prior period.
In a statement, Rittenmeyer said the decision to spin off Conifer comes after "an extensive review of Conifer's strategic alternatives, in which we evaluated multiple options for the business while simultaneously driving significant and sustainable improvements in performance."
In a presentation to investors, Tenet executives said they focused on two viable paths for Conifer: a cash sale or merger and tax-free spin off to create greater value. The company started an auction process in January 2018 and initially contacted 74 parties. It received nine bids that resulted in three final parties, but their offers "failed to recognize the improving financial performance of Conifer."
Executives eventually also concluded a standalone spinoff was preferable to a merger-spin. according to the presentation, which also states "Tenet today is a significantly different company than 18+ months ago."
Conifer, which was founded in 2008, provides revenue cycle and population health management services to other health systems as well as to physician groups and employers. It acquired RCM company SPi Healthcare for $235 million in 2014.
Conifer manages 17 million patient interactions and about $25 billion in net patient revenue annually, Tenet said. Last year, the subsidiary generated more than $1.53 billion in revenue and saw a 26% year-over-year increase in adjusted EBITDA.
While Tenet searches for someone to replace outgoing Conifer CEO Stephen Mooney, the current COO Kyle Burtnett will serve as interim chief.
Tenet will report its second quarter earnings Aug. 5.