Claire Dawson
In 2019, Tenet Healthcare announced a definitive agreement to sell its Memphis-area hospitals and other operations, including Saint Francis Hospital-Memphis and Saint Francis Hospital-Bartlett, to Methodist Le Bonheur Healthcare for $350 million. This decision was made as part of Tenet's strategy to exit service lines, businesses, and markets that are no longer core to its long-term growth plans, with a focus on expanding its outpatient services. However, the deal faced opposition from other healthcare providers in the region, who raised concerns about the potential negative impact on consumers in Memphis due to market consolidation. The Federal Trade Commission (FTC) also sued to block the sale, citing concerns about reduced competition, increased healthcare prices, and diminished incentives for service expansion and technological investment. Ultimately, in 2021, Tenet and Methodist Le Bonheur called off the sale of the two hospitals, deciding to continue serving their communities independently.
| Characteristics | Values |
|---|---|
| Reason for sale | Tenet Healthcare is exiting markets that are no longer a part of their long-term growth strategy. |
| Number of hospitals sold | 2 |
| Names of hospitals sold | Saint Francis Hospital – Memphis, Saint Francis Hospital – Bartlett |
| Number of beds in each hospital | 519, 156 |
| Buyer | Methodist Le Bonheur Healthcare |
| Sale price | $350 million |
| Expected completion year | 2020 |
| Regulatory approvals required? | Yes |
| Regulatory roadblocks | The FTC sued to block the sale due to concerns about reduced competition and increased costs for patients. |
| Outcome | The sale was called off. |
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What You'll Learn
Tenet Healthcare's profitability issues
Tenet Healthcare's profitability has been under scrutiny for years. The company has been selling off its underperforming properties, including its Memphis, Tennessee-area assets, as part of its long-term growth strategy. The sale of the two Memphis-area hospitals, Saint Francis Hospital-Memphis and Saint Francis Hospital-Bartlett, along with their associated physician practices and urgent care centers, was expected to bring in $350 million.
While Tenet Healthcare reported healthy profit numbers, investors were concerned about the sustainability of these profits. A large contribution from unusual items raised questions about the reliability of the statutory earnings to reflect the company's underlying profitability. Analysts suggested that Tenet Healthcare's underlying earnings power might be lower than its statutory profit.
In its fourth-quarter and FY 2023 results, Tenet Healthcare reported a net income of $244 million, or $2.30 per diluted share. The company also highlighted a 12.8% increase in Consolidated Adjusted EBITDA year-over-year. In the fourth quarter of 2024, Tenet Healthcare reported a net income of $318 million, or $3.32 per diluted share, and an Adjusted EBITDA of $1.048 billion, representing a 20.7% margin.
Despite these positive financial results, Tenet Healthcare has been facing challenges. In 2019, the company trimmed its hospital portfolio by shedding eight hospitals across the country and exiting its operations in the UK. This was part of its strategy to focus on expanding its outpatient services and ambulatory footprint. Tenet Healthcare's CEO, Ron Rittenmeyer, hinted at further strategic moves, indicating that the company would continue to make decisions based on its long-term growth plans.
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Regulatory roadblocks and FTC scrutiny
Tenet Healthcare's sale of its Memphis-area hospitals faced potential regulatory roadblocks and scrutiny from the Federal Trade Commission (FTC). The deal involved the sale of two hospitals, Saint Francis Hospital-Memphis and Saint Francis Hospital-Bartlett, along with their associated physician practices and urgent care centres, to Methodist Le Bonheur Healthcare for $350 million.
The transaction raised concerns among other major healthcare providers in the region, specifically Baptist Memorial Health Care and Regional One Health. They argued that the deal could lead to market consolidation, reducing choices and negatively impacting healthcare options for the community. With Methodist acquiring a significant share of inpatient admissions in Memphis, there were worries about the potential negative consequences on consumers.
As a result, the deal attracted scrutiny from the FTC, which filed a lawsuit to block the acquisition due to consolidation concerns. The FTC argued that the transaction would give Methodist a large market share in Memphis, with control over about 60% of the market. The agency also raised concerns about the potential for increased healthcare prices, reduced care quality, and diminished incentives for service expansion and technological investment.
In response to the FTC's lawsuit, Tenet and Methodist Le Bonheur called off the sale of the two hospitals, deciding to continue serving their communities independently. This decision was made despite their surprise at the FTC's action, given that similar transactions among health plans and providers had not been blocked in the past.
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Baptist Memorial Health Care's concerns
Baptist Memorial Health Care and Regional One Health voiced concerns about the impact of the consolidation on consumers. If the deal goes through, Baptist Le Bonheur would have the biggest share of inpatient admissions in Memphis, about 53.5%. This could negatively impact the community's healthcare options, eliminating choice and potentially leading to service consolidation that would not benefit the community.
Baptist Memorial Health Care spokesperson Ayoka Pond stated that they had not filed any opposition with the Federal Trade Commission (FTC). However, given the magnitude of the transaction, they were reasonably certain that the FTC would review the proposed transaction due to its potential negative impact on consumers in Memphis. Baptist Memorial Health Care is regarded as one of the premier healthcare systems in the nation, committed to providing compassionate, high-quality, and patient-focused care.
The deal between Tenet and Methodist raised concerns among other providers in the region, suggesting that the FTC might scrutinize the sale more closely than usual. Tenet's exit from Memphis and the Tennessee market is part of its long-term growth strategy, focusing on expanding its outpatient services and ambulatory footprint.
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Tenet's long-term strategy
Tenet Healthcare's long-term strategy involves focusing on expanding its outpatient services and increasing its ambulatory footprint. The company has been betting on the continued shift of surgical cases to outpatient settings. As part of this strategy, Tenet acquired United Surgical Partners International (USPI), a string of outpatient surgery centers across the country. This move allowed Tenet to expand its outpatient portfolio while shedding hospitals that were no longer core to its long-term growth strategy.
In line with this strategy, Tenet announced a definitive agreement in December 2019 to divest its hospitals and operations in the Memphis area. The agreement included the sale of two hospitals, Saint Francis Hospital-Memphis and Saint Francis Hospital-Bartlett, along with their associated physician practices and six MedPost urgent care centers. The deal was valued at $350 million. However, the sale faced opposition from other healthcare providers in the region, who raised concerns about the potential negative impact on consumers in Memphis due to market consolidation.
The Federal Trade Commission (FTC) also intervened, suing to block the sale due to consolidation concerns. The FTC argued that the deal would give the buyer, Methodist Le Bonheur Healthcare, a large market share in the Memphis area, reducing competition and potentially leading to increased healthcare prices and reduced care quality. As a result of these challenges, the sale was called off in January 2021, with Tenet deciding to continue serving the Memphis community independently.
Despite the setback in Memphis, Tenet's long-term strategy remains focused on expanding its outpatient services and ambulatory footprint. The company has been actively considering its options for future strategic moves, indicating that it will continue to exit service lines, businesses, and markets that are not core to its growth strategy while seeking opportunities to expand its outpatient portfolio further.
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The impact on the Memphis healthcare market
The sale of Tenet Healthcare's Memphis hospitals and operations to Methodist Le Bonheur Healthcare for $350 million was expected to have a significant impact on the Memphis healthcare market. The deal included the sale of Saint Francis Hospital-Memphis and Saint Francis Hospital-Bartlett, their associated physician practices, and six urgent care clinics.
The impact of the sale on the Memphis healthcare market was a cause for concern for several parties. Firstly, the Federal Trade Commission (FTC) sued to block the sale, arguing that it would reduce competition, increase costs for patients, and hurt the quality and cost of care. The FTC's complaint highlighted that Methodist and Saint Francis were direct competitors, and the acquisition would eliminate this competition, giving Methodist a large market share of about 60% in the Memphis area. This consolidation raised concerns among other healthcare providers in the region, such as Baptist Memorial Health Care and Regional One Health, who worried about the potential negative impact on consumers in Memphis and the reduction in healthcare options and choices for the community.
In contrast, Tenet Healthcare and Methodist Le Bonheur Healthcare defended the deal, stating that their joint commitment was to improve healthcare delivery for the residents of Memphis and surrounding communities. They emphasized enhancing access to care, medical technology, and the quality of physicians and staff. The deal also had the support of local health plans, physicians, employers, and community leaders.
Ultimately, due to the FTC's lawsuit and the concerns raised by other providers, the sale was called off in January 2021. Tenet Healthcare decided to continue serving the Memphis community independently, maintaining the status quo in the Memphis healthcare market for the time being.
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Frequently asked questions
Tenet Healthcare was selling its Memphis hospitals as they were underperforming and no longer considered a core part of their long-term growth strategy.
The agreement included the sale of Saint Francis Hospital – Memphis and Saint Francis Hospital – Bartlett, the physician practices associated with both hospitals, and six MedPost urgent care centres.
The buyer was Methodist Le Bonheur Healthcare, a non-profit organisation.
The sale price was $350 million.
No, the sale was called off in 2021 due to an FTC lawsuit seeking to block the acquisition. The FTC argued that the deal would negatively impact consumers in Memphis by reducing competition, increasing costs for patients, reducing care quality, and diminishing incentives to expand services and invest in technology.
