Tenet Healthcare To Sell or Close 14 Hospitals Nationwide, Eliminate Jobs, Expenses

March 19, 2003

Santa Barbara-based Tenet Healthcare, the nation's second-largest for-profit hospital chain, announced yesterday it would "sell, close or shrink" 14 of its 114 hospitals and cut jobs and expenses to offset an expected decline in Medicare payments, the New York Times reports. Tenet officials said yesterday the 14 hospitals it would sell or close accounted for 6% -- $933 million -- of its $14.7 billion revenue for the twelve months ending in November (Pollack, New York Times, 3/19). Tenet will sell or close four hospitals in Arkansas; two in Tennessee; two in Missouri; two in the Philadelphia area; one in northern Florida; one near Houston; one in North Las Vegas, Nev.; and one in California, according to the Tennessean (Russell/Lewis, Tennessean, 3/19). Much of the proceeds from the hospital sales will be used to accelerate share buybacks under an existing stock repurchase program, the Wall Street Journalreports (Rundle, Wall Street Journal, 3/19). In addition, the company will reduce operating expenses by $100 million by eliminating staff positions "not directly involved in patient care," selling two of its three corporate jets and consolidating its hiring of temporary nurses. Tenet officials did not say how many jobs would be cut (New York Times, 3/19).

Restoring Shareholder Confidence

Tenet's announcement yesterday is the latest in a series of moves intended to "bolster investor confidence," the Wall Street Journal reports (Wall Street Journal, 3/19). In January, Tenet announced that it would voluntarily reduce the amount of money it charges Medicare per year by $700 million. The new pricing policy will apply to outlier payments, which reimburse for unusually expensive care. Tenet's new policy is expected to reduce outlier payments from $65 million per month to $8 million, according to company officials (California Healthline, 1/7). The moves are all related to the "pressure" the company is facing related to several federal investigations into its business practices, the New York Times reports (New York Times, 3/19). The HHSOffice of Inspector General last November announced that it would audit Tenet's hospitals in an attempt to determine whether the company properly billed Medicare for outlier payments. Tenet executives also announced last October that federal officials are investigating allegations that two surgeons performed unnecessary procedures at Tenet's Redding Medical Center in Redding, Calif. In addition, Tenet said in early November that the Federal Trade Commission had requested information about the 1999 merger of two of its hospitals in Missouri as part of the agency's broad inquiry into hospital mergers nationwide (California Healthline, 11/7/02). Sheryl Skolnick, managing director and analyst for Fulcrum Global Partners, said, "The company is taking the necessary steps to set the business on a better path." However, Skolnick added that more difficult cost-cutting measures will be needed in the future (New York Times, 3/19).