Tenet Healthcare shares M&A updates, projects above-guidance 2023 earnings

Tenet Healthcare has disclosed a pair of new and completed hospital transactions alongside projections that next week’s 2023 financial report “will be above the high end” of its guidance.

To begin, the major for-profit hospital and ambulatory surgery center (ASC) operator announced a new definitive agreement to sell four of its Orange County and Los Angeles County hospitals (Fountain Valley Regional Hospital, Lakewood Regional Medical Center, Los Alamitos Medical, Placentia-Linda Hospital) and related operations to UCI Health.

Together, the to-be-sold facilities generated revenues of about $1 billion and pre-tax income of roughly $29 million during 2023.

Tenet expects the $975 million deal will close in the spring and bring after-tax proceeds of about $800 million, as well as a pre-tax book gain of about $500 million. Tenet also noted that it will retain net working capital related to operations prior to the deal’s close, and that Conifer will continue providing revenue cycle management services through the handoff.

“UCI Health is an innovative academic health system with a deep commitment to enabling accessibility to world-class, academic medicine closer to home,” Tenet CEO Saum Sutaria, M.D., said in a statement. “Integrating these hospitals into their system will meaningfully enhance access to the benefits of university medicine.”

In a concurrent news release, UCI Health said that its expansion to the Tenet hospitals will give more of the region's patients access to the advanced therapies. As the clinical enterprise of UC Irvine, UCI Health currently operates the region's only Level 1 trauma center and designated comprehensive center, and boasts "the region’s largest and most diverse portfolio of clinical trials, ranging from cancer to neurosciences, digestive diseases, orthopedics and internal medicine specialties." 

Elsewhere, Tenet said that it has wrapped up a $2.4 billion sale of three South Carolina hospitals (Coastal Carolina Hospital, Hilton Head Hospital and East Cooper Medical Center) and their related operations to Novant Health.

The cash deal brings roughly $1.75 billion in after-tax proceedings, Tenet said. Additionally, the systems have struck an agreement for Tenet’s revenue cycle management subsidiary, Conifer Health Solutions, to provide services among the facilities for 15 years, according to the announcement.

In its own announcement, Novant Health and its CEO and president, Carl Armato, celebrated its “long-term investment in South Carolina” and plans to “transform the health and wellness of these communities through expanded specialty services and clinical expertise.”

During last month’s J.P. Morgan Healthcare Conference, Armato had framed the Tenet deal as a cornerstone of Novant’s expansion within the state. Of note, the nonprofit’s concurrent deal to buy a couple of Community Health Systems hospitals in its home state of North Carolina was opposed by regulators last week.


Surgical growth boosts Tenet through 2023

In today’s announcement, Tenet wrote that the two deals are estimated to favorably impact 2024 income tax expense by about $190 million “due to a reduction in interest expense limitations.” The deals also play into Tenet’s strategic goal of reducing leverage.  

The system, which currently operates 58 acute care and specialty hospitals and either operates or has ownership interest in over 480 ASCs, is slated to share its Q4 and 2023 financial results next week.

The company said it’s still working on finalizing those statements, but currently estimates that its adjusted EBITDA for the year “will be above the high end of its current adjusted EBITDA guidance range” after normalizing for recognition of Medicaid supplemental revenue program adjustments. It attributed much of the elevated performance to strong surgical growth within its ASC segment, United Surgical Partners International.

“Our team continues to deliver consistently strong results, driven by Tenet’s data-driven and disciplined operating model,” Sutaria said. “We look forward to providing more details on our performance when we announce our complete fourth quarter and full-year results on February 8, 2024.”

Tenet's stock has been trading about 6% higher since releasing the transaction and projection update Thursday morning.