NEW YORK (Reuters) - Tenet Healthcare Corp (THC.N) is eyeing growth through acquisitions or partnerships in regions where it already has a presence and would consider buying a larger system to gain entry into a new geographic market, its chief executive said on Tuesday.
The third-largest for-profit U.S. hospital chain, with $9.12 billion in net operating revenue, Dallas-based Tenet owns 49 acute-care hospitals with more than 13,000 beds, and 124 outpatient clinics. Its facilities are concentrated in the southern United States, with more than half of its operations in California, Florida and Texas.
Local name recognition is key in the hospital sector, which is why Tenet is looking to expand its affiliations with other healthcare providers and strengthen its networks of hospitals, ambulatory centers and physicians groups in the markets where it operates, Tenet CEO Trevor Fetter said at the Reuters Health Summit.
Tenet also is focused on expansion in the outpatient setting. The company is investing in both acquiring and building new outpatient surgical centers and urgent care treatment facilities. It added seven outpatient facilities in the first quarter.
“Our priority remains our current geographies. But if we could get into a new geography in a significant way, that would be very appealing,” Fetter said.
Two years ago, Tenet successfully fended off a $4.1 billion hostile takeover attempt by No. 2 hospital chain Community Health Systems (CYH.N). Tenet, Community Health and other large hospital operators are looking for acquisitions to drive growth as the stagnant economy continues to depress patient demand for medical services.
“It’s an incredibly fragmented industry. I think there will be substantial consolidation in it over time,” Fetter said.
Cheap borrowing costs - the lowest the company has seen in its 50-year history - are fueling the increased appetite for deals, along with the ability to bring economies of scale that can lower costs and improve patient care, Fetter said.
The company has had success in controlling costs in areas such as labor and supply chain management. Tenet recorded some $80 million in cost savings in each of the last two years, Fetter said.
“We can look at a standalone hospital and bring a lot of improvement to bear instantly into its financial picture,” he said.
Tenet, which in February announced the acquisition of Emanuel Medical Center - a 209-bed hospital in Turlock, California - would like to find more good-quality hospitals on a solid financial footing, not necessarily distressed hospitals.
Interest in acquiring such properties is high.
“There’s a line around the block,” Fetter said.
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Reporting by Susan Kelly; Editing by Bill Berkrot and Tim Dobbyn