Tenet Healthcare is no longer spinning off Conifer, its revenue cycle subsidiary

Tenet Healthcare has officially called off plans to spin out Conifer, its revenue cycle business unit, due to insufficient market interest as well as the subsidiary's recent operational turnaround and growth potential.

Announced today in a press release and investor call, Tenet leadership said the board made the decision during recent months “following a thorough review” and “in consultation with independent legal and financial advisers and in consideration of the best interests of Tenet and its shareholders.”

“Conifer is primed with a robust pipeline and recent client wins with value that is not yet fully realized,” Saum Sutaria, M.D., CEO of Tenet, said in a statement. “When coupled with ongoing efficiency opportunities from offshoring and automation, we have a compelling runway for the business.”

Tenet began looking into a potential spinoff or other strategic decisions around the subsidiary in late 2017 and early 2018.

Executive Chairman Ron Rittenmeyer told investor Tuesday that the company had “many months of meetings” with an interested party shortly after this point but walked away from the talks when “it was clear their interest was really focused on a fire sale purchase, offering targets related to Tenet’s cash collection expectations that were simply not acceptable.”

After considering a number of other approaches, the company announced it would pursue a tax-free spinoff of the business in mid-2019. During this time, Tenet worked to strengthen the business’s operating margin, revamped its leadership and prepared the necessary regulatory forms and other requirements, Rittenmeyer said.

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However, the company was thrown another curveball with the COVID-19 pandemic. Although Tenet announced in early 2021 that it would be pushing back the spinoff by at least a year, Conifer’s growth took a hit and the company worried that its business once again wasn’t being appropriately recognized by the market.

“Frankly, the market appeared to be less engaged in recognizing value driven by revenue cycle businesses” during the pandemic, Rittenmeyer said.

Despite the road bumps, Tenet’s board concluded that Conifer’s improving performance and upward growth trajectory earned it a lasting place with the for-profit healthcare giant.

According to today’s announcement, Conifer has improved its adjusted EBITDA margin by more than 1,000 basis points since 2017. The unit is also expected to deliver revenue growth “in the mid- to high-single digits with a strong margin and cash flow profile” throughout 2022, the company wrote.

“We believe that continuing to build on our progress with Conifer will provide greater returns for Tenet’s shareholders,” Rittenmeyer said in a statement.

Tenet’s broader business has also been going through a rework as ambulatory surgery subsidiary United Surgical Partners International grows and the core acute care hospital business consolidates within core markets.

On its earnings call last month, Rittenmeyer again affirmed that a more diversified approach—one which includes Conifer’s steady growth and cash flow generation—will be the way forward for what was a traditional hospital company.