Tenet boosts surgery center footprint with $1.1B deal

Dive Brief:

  • Tenet Health has signed a $1.1 billion cash deal with SurgCenter Development to acquire up to 45 ambulatory surgery centers in nine states, injecting greater scale into Tenet’s already sizable surgery center footprint.
  • The centers will be operated by Tenet’s ambulatory surgery unit, USPI, and Tenet has already completed the acquisitions on a majority of the centers, the hospital operator said Thursday. The remaining will close by the end of this year, pending certain state approvals.
  • Tenet will have up to a 60% ownership stake in each center with the remainder owned by physician partners.    

Dive Insight:

The deal doubles down on Tenet’s strategic focus of building up its outpatient surgery business to round out its inpatient hospital operations. The move comes after federal regulators have paved the way for more surgeries to be performed outside hospitals, a clear benefit for outpatient centers.

Tenet’s USPI unit will now operate as many as 310 ambulatory surgery centers, including 24 surgical hospitals, in 33 states.

Tenet leaders called the deal transformative. “We will become the leading national musculoskeletal surgical platform, surpassing others in the sector,” Saum Sutaria, Tenet’s chief operating officer, said during a call with investors announcing the deal Thursday.

The chain continues to bet on the shift from inpatient to outpatient care and sees the deal as a leap forward in terms of scale. It also expects volumes to continue to recover amid the pandemic. “We believe we will continue to see that demand increase over time as regulatory and reimbursement frameworks improve for these lower-cost, patient-friendly settings,” Sutaria said.

The new centers generate high margins and have minimal debt. Also, they have a similar profile as current USPI centers and will fit neatly in the current portfolio, Sutaria said.

The new centers generate about $430 million in annual revenue and $210 million in EBITDA. The 45 centers are located in Arizona, Florida, Indiana, Louisiana, Maryland, Ohio, New Hampshire, Texas and Wisconsin.

Tenet will have immediate scale in states where it previously had a smaller footprint. For example, Tenet currently has two ASCs in Indiana but the deal will add seven. It also gives Tenet entry, and immediate scale, into Wisconsin and Maryland, leaders said Thursday.

As part of the deal, Tenet will assume $18 million in debt.