Tenet to Sell 19 Hospitals in State

By Lisa Girion and Don Lee

Jan. 28, 2004 12 AM PT

Times Staff Writers

Tenet Healthcare Corp. plans to put up for sale nearly a third of its medical facilities, including 19 in California, a move that is expected to vastly alter the health-care landscape in the Los Angeles region.

The Santa Barbara-based company, which has been battered by scandal and steep financial losses, said a major reason for the sale was a state mandate to retrofit its buildings to meet earthquake safety standards. Tenet said it faced $1.6 billion in costs for seismic upgrades at the hospitals earmarked for sale. Many other hospital owners around California also are wrestling with how to pay for such improvements.

Tenet, the largest hospital chain in the state, said it hoped to find buyers for the facilities but couldn’t guarantee that they all would remain open. In fact, some analysts and consultants predicted that a number of hospitals could close, further squeezing services in a region struggling to provide adequate emergency care.

Also uncertain is what Tenet’s plans will mean for the 15,000 employees who work at the 19 California hospitals being put on the block. All but one of those facilities are in Los Angeles and Orange counties, and they include such major institutions as Queen of Angels/Hollywood Presbyterian Medical Center, Brotman Medical Center in Culver City and Western Medical Center in Santa Ana.

“This is not good news,” said John Edelston, a health-care consultant in Westlake Village and former chairman of the Los Angeles County Emergency Medical Services Commission. “If hospitals close, it will mean less access and longer waits than there already are. And it will create more haves and have-nots” in the medical-care system.

State Sen. Sheila Kuehl (D-Santa Monica), a member of the Senate Health Committee, also expressed alarm.

“I assume that Tenet is selling because it feels it is not making enough money,” she said. “If that’s the case, then I am worried about who’s going to buy and operate the hospitals.... Tenet may have already convinced people that these hospitals are not making money.”

Tenet is to detail today its plans to shore up its finances by selling a total of 27 medical facilities nationwide, including eight in Louisiana, Massachusetts, Missouri and Texas. The proposed divestiture is expected to be completed by the end of the year, generating net proceeds of $600 million.

In addition to the previously announced disposition of four other medical centers, the divestiture would whittle Tenet’s nationwide chain to 69 facilities from 100. Tenet had 114 hospitals less than two years ago, before it was hit with a series of government investigations into allegedly unnecessary heart procedures, questionable Medicare billing and other issues.

Of the hospitals set to stay in Tenet’s portfolio, 17 are in California, which would remain its largest market with $2.5 billion in annual revenue and 17,000 employees.

Tenet’s chief executive, Trevor Fetter, said in an interview Tuesday that the sales were aimed at making the company financially stronger and better able to care for patients.

“We’re engaged in the turnaround of this company, and in order to do that we’ve determined to focus on a core group of 69 hospitals,” Fetter said.

The hospitals the company plans to keep have “strong positions in their markets,” he added. “They are markets that are attractive to us. Some of the markets are very urban markets, so it’s not safe to categorize this in any geographic style.”

Tenet also noted that the bill for seismic retrofitting at the 17 hospitals it is keeping in California is relatively cheap: $300 million. The costs are far higher at the hospitals it is selling primarily because they are older and larger.

Tenet expects to take a loss on the sale of almost all of the California facilities, home to 4,151 hospital beds.

Fetter said nonprofit organizations and community groups would be included in Tenet’s search for buyers.

There is a “vibrant market for people willing to acquire hospitals,” he said, and it’s rare when buyers can’t be found. Last year, the company announced plans to sell 14 hospitals and found buyers for 12. The others were closed.

Some analysts, however, were skeptical that Tenet would do quite so well this time. Given the costs for seismic upgrades and the difficulty of meeting the state’s new nurse staffing requirements, experts said, Tenet’s California hospitals will be a very tough sell -- even at fire-sale prices.

“Why on Earth would anybody want to buy any of them?” said Sheryl Skolnick, managing director at Fulcrum Global Partners, a brokerage in New York. “They’ve got some pretty crummy assets in terms of their ability to generate a reasonable economic return over a reasonable period of time.”

Even if Tenet does find buyers for all or most of the hospitals, there’s still likely to be disruption of the delivery of medical care in some communities. There’s no guarantee that a buyer will continue to invest in the facility and provide the same level of services or types of treatment as Tenet.

Some of the hospitals up for sale are key links in the region’s medical system. Western Medical, for example, is one of only three major trauma centers in Orange County. If it ceases to provide trauma services, “it’s going to add more pressure on existing resources,” said consultant Craig Myers, a former Orange County hospital executive.

Tenet’s finances have deteriorated as its legal woes have mounted. The company lost $523 million in the first nine months of 2003, compared with a profit of $848 million during the first three quarters of 2002.

After peaking at $52.20 in October 2002, Tenet’s stock plunged, bottoming at $11.45 in July. Tenet’s stock fell 85 cents Tuesday to $16.15 in New York Stock Exchange trading.

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For sale

Among the hospitals Tenet Healthcare plans to sell are these facilities in California:

* Brotman Medical Center, Culver City, 420 beds

* Centinela Hospital Medical Center, Inglewood, 370

* Chapman Medical Center, Orange, 114

* Coastal Communities Hospital, Santa Ana, 178

* Community Hospital of Huntington Park, Huntington Park, 81

* Daniel Freeman Marina Hospital, Marina del Rey, 166

* Daniel Freeman Memorial Hospital, Inglewood, 358

* Doctors Medical Center, San Pablo, 232

* Encino-Tarzana Regional Medical Center, Encino campus, 151