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April 16, 2018

Saint Vincent, MetroWest Medical appear safe from divestment

PHOTO/MATT WRIGHT Saint Vincent Hospital CEO Jeffrey Welch sees Tenet Healthcare's investment in its two Central Massachusetts facilities as a good sign they will avoid the parent company's divestment efforts.
Jeff Liebman, CEO of MetroWest Medical Center

The third largest contributor to the flurry of hospital mergers and acquisitions in 2017 – the biggest year for hospital deals in a decade, according to consulting firm Kaufman Hall – was Tenet Healthcare Corp., owner of Saint Vincent Hospital in Worcester and MetroWest Medical Center in Framingham.

But while Dallas-based Tenet has sold nine hospitals since August, and said it will sell four more, the publicly traded company has made no suggestion it will offload its Massachusetts holdings – its only hospitals in the Northeast, which it bought in a 2013 acquisition of Tennessee-based Vanguard Health Systems.

Focusing on the core market

Massachusetts remains part of Tenet's core market, said Senior Vice President Dan Waldmann, even as the healthcare system had announced plans to divest hospitals in Texas, Chicago, Philadelphia, Missouri, and the United Kingdom, to help pay down its $15-billion debt. The system also restructured its corporate operations, eliminating a regional management layer, and is exploring the sale of Conifer Health Solutions, its healthcare business services segment.

Coinciding with these developments has been greater investment in ambulatory care centers, which have grown tremendously for Tenet since the acquisition of United Surgical Partners International, another Texas company, in 2015. In buying a majority stake in USPI, Tenet more than doubled the number of ambulatory care centers it owns, to 460 as of this month.

The ambulatory care side is important, because systems can perform surgeries more efficiently outside of hospitals, where emergency events impact patient flow, and where overhead costs are higher.

The hospital business is still central to the Tenet strategy, of course. It is the third largest for-profit hospital operator in the U.S., according to Becker's Hospital Review, with 69 hospitals as of April, though the number will decrease to 68 when the planned sale of a St. Louis hospital is complete.

Rather than get out of the acute-care hospital business in order to focus on outpatient care, CEO Ronald Rittenmeyer, told healthcare media outlet Modern Healthcare in January the system is divesting hospitals not fitting its core business. Tenet wants to operate hospitals in the top one or two acute care providers in their markets, which is certainly the case in Greater Worcester, where Saint Vincent is the smaller of two, behind UMass Memorial Medical Center.

The lines are blurred a bit for MetroWest Medical Center, which has campuses in Framingham and Natick and competes with Greater Boston providers. But Tenet has invested in surgery programs there and inked a key clinical affiliation with Boston-based Beth Israel Deaconess Medical Center in Boston in 2016 to make MetroWest Medical Center a more attractive option for people seeking clinical services in the Boston suburbs.

Those investments are something Jeffrey Welch – CEO of Saint Vincent Hospital and group CEO of Tenet's Massachusetts and South Carolina hospitals – noted in an interview earlier this month. Welch joined Saint Vincent in April 2017 when former CEO Steven MacLauchlan retired. Welch has worked for Tenet for 10 years, and previously led three Florida hospitals for the system. Jeffrey Liebman, CEO of MetroWest Medical Center, was also hired last year.

Welch said at both MetroWest and Saint Vincent, Tenet has spent millions upgrading robotic surgery equipment and IT infrastructure – evidence, he said, Tenet is committed to Massachusetts.

Big profit, smaller cost

Meanwhile, Saint Vincent was the most profitable hospital in Central Massachusetts in its fiscal 2016 year, ending with a profit of $47.6 million and a total margin of 10.4 percent. MetroWest Medical eked out only about $800,000 in profit the same year, but other Massachusetts hospitals lost money. Overall, Tenet turned a $181-million profit on its Massachusetts operations, which include the two hospitals and their two affiliated physician organizations. Full-year financial results for 2017 haven't been published yet.

Despite its financial success here, Tenet has differentiated itself as a lower-cost provider, compared with UMass Memorial Medical Center, a large academic medical center, and Boston area hospitals.

“The thing that is really fortunate for this community is we're not the high-cost Boston hospital,” Welch said.

Eric Dickson, CEO of Worcester-based UMass Memorial Health Care, agreed Saint Vincent's value proposition is a big advantage for Tenet as healthcare payers move toward value-based care and accountable care organizations requiring providers to deliver care on budget. It has positioned Saint Vincent well, Dickson said, to work cooperatively with Reliant Medical Group, which officially became part of UnitedHealth Group subsidiary OptumCare this month. Reliant and Saint Vincent have historically worked closely together, with Reliant physicians referring patients to Saint Vincent, and even renting office space at the hospital.

“Optum needs a low-cost center to send patients to, and Saint Vincent is that low cost center in Central Massachusetts,” Dickson said.

Meanwhile, Dickson mused UMass Memorial is the last major nonprofit healthcare system in Greater Worcester, surrounded by for-profits Tenet, Reliant and Steward Health Care, owner of the Central Massachusetts Independent Physician Association.

Speaking of Steward, Dickson speculated the private equity-backed healthcare system, which is based in Boston but is growing nationally, may be eying Tenet's Massachusetts hospitals for acquisition, given the group's overall profitability.

Welch dismissed the possibility.

“I really doubt that is in the works,” Welch said. “Tenet has supported our hospitals and invested in them.”

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