Dislike hospitals? Then why not try surgery at your friendly, local “ambulatory surgical center”? These are smaller, specialised facilities where relatively minor surgeries can be performed, usually at a lower cost and during a shorter stay. ASCs are becoming more important as the US seeks to restrain healthcare spending. Companies, of course, have spotted the opportunity. On Monday Tenet Healthcare, a large hospital chain, announced a complex deal to acquire private equity-owned United Surgical Partners. The deal will create the country’s largest ASC group.
The federal government’s healthcare authority recommended this year that Medicare (the health insurance programme for the elderly) reimburse hospitals for procedures that could be performed at ASCs at the lower rate they would have paid a surgical centre for the same procedure. Such a move could save Medicare an estimated $15bn over the next few years and consumers another couple of billion dollars in co-payments. Whether or not it is adopted, the proposal underscores the growing influence of ASCs.
Tenet, known for its chain of hospitals stretching across the Sunbelt, has been open about extending its business past in-patient care. Tenet will form a joint venture with United Surgical. The hospital group will contribute its 44 ASCs, 20 imaging centers and $425m to a joint venture. United Surgical will put in 202 ASCs and 16 surgical hospitals. Tenet, which will also refinance $1.5bn of United Surgical debt, will initially own 50.1 per cent of the vehicle with options to buy out the rest in the next five years. The overall equity value of the joint venture is $2.6bn
Tenet’s net debt is a hypertensive six times its earnings before interest taxes depreciation and amortisation, so a full buyout would have been tough to achieve. Still, its shares jumped more than 5 per cent on the news: investors appreciate that the United’s ebitda margin of nearly 40 per cent is well ahead of Tenet’s 12 per cent — ASCs tend to be more profitable than bigger hospitals. And the partnership will have only a 5 per cent share of the $24bn ASC market, leaving plenty of opportunity for more dealmaking.
Tenet’s traditional hospital business still represents more than 85 per cent of its revenue. Some operations still require long stays, even if no one has the appetite to pay for them.
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