Mounting problems between Tenet Healthcare Corp. (THC) and federal authorities have sparked second thoughts among a group of commissioners in Louisiana who voted last month to lease their hospital to the California-based hospital chain, according to a report in the New Orleans Times-Picayune.
Tenet, the dominant player in the New Orleans market, beat out several competitors, including Nashville-based HCA and Iasis, for the purchase of Slidell Memorial Hospital. In mid-October, the hospital board voted to lease the hospital to Tenet for $130 million for 50 years. Its attorneys told the board it would need “a compelling reason” to reject Tenet and go with the next highest bid of $110 million, believed to be from Province Healthcare of Brentwood, the article says.
In light of the government’s recent probe into Tenet’s abnormally large amount of outlier payments, a group of commissioners may push the board to reconsider its decision, the article says. If made, the push is expected to come Friday or Nov. 20 at a meeting of the board of St. Tammany Parish Hospital Service District 2. Hospital board Chairman Al Hamauei told the Times Picayune he would ask Tenet’s regional vice president for operations to attend Friday’s meeting to address concerns.
Tenet’s Medicare probe, along with a separate investigation by the Federal Trade Commission into its Poplar Bluff, Mo., merger five years ago, have cast a shadow on the for-profit hospital industry over the past week. Stocks were up today for the first time since Tenet acknowledged the audit. Comparisons to Columbia/HCA’s 1997 raid and the ousting of Rick Scott have permeated national media coverage since last week.
Locally, however, hospital companies are reacting more to the increased focus by the FTC on mergers, not Medicare payments (Tenet’s situation is unique because the company hosts a large mix of Medicare and outlier reimbursements through its teaching hospitals). For example, industry trade publication Modern Healthcare reported yesterday that high level HCA executives, possibly Chief Executive Jack Bovender, would attend a Nov. 18 public meeting with Missouri state Attorney General Jay Nixon in Kansas City regarding the proposed, $1.1 billion purchase of Health Midwest (a separate meeting is scheduled for Nov. 20 with Kansas state Attorney General Carla Stovall).
In New Mexico, the state’s insurance superintendent is holding a public meeting today regarding the $235 million proposed purchase of Lovelace Health Systems by Nashville-based Ardent Health Services. If completed, the sale would give Ardent six hospitals in the Albuquerque market.
The magnitude of Tenet’s situation and the trickle down effect it will have on the industry are unknown, but the potential implications are worth paying attention to. Indicative of the situation brewing in Slidell, Tenet may find additional hospital purchases an unrealistic business objective. If closer scrutiny spreads across the industry, deals might be harder to close for everyone, which of course would mean slower financial growth for investors and shareholders.
Unfortunately for the industry, Tenet’s situation has pushed for-profit health care back in front of the federal government’s watchful eye, and the increased FTC activity is proving the Republican administration might not be as friendly as everyone thought to consolidation. Plus, the industry’s time in the spotlight resurrects popular misgivings about the profit motive in medicine, an argument that usually resurfaces when the health care chips are down.
After several years of clear sailing for the hospital business, a perfect storm could be brewing. What investors need to know is whether it blows over or wreaks havoc.