Hospital chain Tenet to buy Vanguard Health for $1.73 billion

Mon Jun 24, 2013 3:31pm EDT
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By Susan Kelly and Esha Dey

(Reuters) - U.S. hospital operator Tenet Healthcare Corp said on Monday it will buy smaller rival Vanguard Health Systems Inc for $1.73 billion, putting it in a better position to benefit from the millions of Americans about to get insurance under President Barack Obama's healthcare reform.

Investors expect hospital revenue to grow from treating more Americans insured under the reform, and speculation that major hospital chains would increase their acquisitions has fueled stocks in the sector.

As providers prepare for the healthcare overhaul, they are also grappling with a slowdown in the use of medical services. Americans are visiting doctors less frequently and having fewer elective procedures as out-of-pocket costs rise.

"All of the uncertainty around health reform has many healthcare systems concerned about how they are going to navigate this new era. You have to have size and scale to succeed," Tenet Chief Executive Trevor Fetter said in an interview.

Tenet's purchase of Vanguard is expected to close by the end of the year. The U.S. health overhaul takes full effect next January.

The combined company will be the second-largest for-profit U.S. hospital operator, with total revenue of about $15 billion in 2012, behind No. 1 HCA Holdings Inc but surpassing Community Health Systems Inc. Tenet fended off a hostile takeover effort from Community Health in 2011.

Buying Vanguard will give Tenet more clout in negotiations with managed care providers, drug companies and medical device makers, Fetter said, while reducing overhead costs.

Dallas-based Tenet said the expanded chain would have 79 hospitals and 157 outpatient centers, making it No. 1 or No. 2 in 19 key markets, including San Antonio and South Texas.   Continued...

Trevor Fetter, CEO of Tenet Healthcare, speaks at the Reuters Health Summit in New York, May 7, 2013. REUTERS/Brendan McDermid