Tenet Healthcare's deal to acquire Vanguard Health strengthens Tenet's ability to make acquisitions of not-for-profit hospitals and "might prompt smaller, stand-alone hospitals to consider some sort of alignment," Moody's Investors Service says.
Tenet Healthcare Corp.'s $4.3 billion acquisition of Vanguard Health Systems, Inc. is a credit negative for not-for-profit hospitals, particularly for smaller, stand-alone hospitals that will have to compete within the service areas of the soon-to-be much larger for-profit company, Moody's Investors Service says.
"The reality is this just puts a very effective competitor in their back yard or their front yard, potentially," says Beth Wexler, vice president and senior credit officer at Moody's. "Bigger picture, these smaller hospitals that might have significant capital needs don't necessarily have great leverage with payers or alignment with physicians, particularly when you are talking about markets that are more secluded or rural or difficult to recruit to. They are going to be more and more challenged to have an operating platform that is sustainable."
A Moody's analysis notes that the planned acquisition "consolidates two large and powerful systems into a bigger company with pro forma revenues of $15 billion as of 31 March that will increase competition, particularly for smaller standalone NFP community hospitals that operate in the Tenet and Vanguard markets."
When the merger is finalized, Tenet will operate 77 hospitals in 30 markets, which includes Tenet's 49 hospitals in 24 markets and Vanguard's 28 hospitals in six markets.
Moody's says that "the potential shared savings and combined resources will allow Tenet to engage in new and enhanced competitive endeavors that could threaten NFP hospitals, especially those with fewer resources. In recent years, Tenet has diversified its business with financial consulting services to hospitals and other healthcare-related businesses. Both Tenet and Vanguard have aggressively expanded their outpatient presence and often compete with similar ambulatory strategies as NFP hospitals."