The largest hospital in Orange County is about to get significantly larger.
UCI Health on Feb. 1 said it is spending $975 million to acquire four hospitals—including three in Orange County—from Tenet Healthcare Corp. (NYSE: THC).
“UC Irvine has deepened its healthcare commitment to the future of Orange County, our region and California,” UC Irvine Chancellor Howard Gillman said in a statement.
“Our vision will bridge gaps in regional care and reinforce UCI’s place among the nation’s leading academic health systems while advancing solutions to challenges facing healthcare.”
The deal will add another $1 billion in annual revenue and about $71 million in adjusted profit to UCI Health.
It’s not the only local addition to UCI Health’s local portfolio; it is also currently spending $1.3 billion to build a new hospital campus in Irvine, at the corner of Jamboree Road and Campus Drive, not far from the university’s main campus.
UCI Health once again topped the Business Journal’s annual list of the biggest hospitals in Orange County, reporting revenue climbed 14% to $1.85 billion for the year ended Sept. 30.
Tenet Divestitures
The four hospitals being bought by UCI Health are: Fountain Valley Regional Hospital, Los Alamitos Medical and Placentia-Linda Hospital in Orange County as well as Lakewood Regional Medical Center and other related operations.
The acquisition, expected to be completed this spring pending regulatory approvals, will triple UCI Health’s licensed bed count to about 1,317.
“Our four hospitals have provided high-quality care for Orange County and Los Angeles County residents for over 50 years,” Tenet Chairman and Chief Executive Saum Sutaria said in a statement.
“UCI Health is an innovative academic health system with a deep commitment to enabling accessibility to world-class, academic medicine closer to home. Integrating these hospitals into their system will meaningfully enhance access to the benefits of university medicine.”
Heavy Regulations
Dallas-based Tenet owns 58 hospitals as well as 480 ambulatory surgery centers, making it the nation’s largest in that sector; it operates that group under the name United Surgical Partners International.
It reported 2023 revenue climbed 7.2% to $20.5 billion while its adjusted EBITDA increased 2.1% to $3.5 billion.
The sale is another major departure from Orange County for Tenet, which at one point was the county’s largest hospital operator.
In 2009, Tenet ended its lease for the Irvine Regional Hospital, ending a nearly 20-year operation. The hospital was taken over by Hoag Memorial Hospital Presbyterian, the second largest in Orange County. Hoag is spending about $1 billion to expand in Irvine.
Tenet has long had problems operating in California.
“Our acute care hospitals in California are required to maintain minimum nurse-to-patient staffing ratios, which impacts our labor costs,” Tenet said in its 2022 annual report.
“Moreover, from time to time, we are required to limit admissions if we do not have the necessary number of nurses available to meet the required ratios, which has a corresponding adverse effect on our revenues.”
Tenet is also facing a potential retrofit of its hospitals to meet new earthquake standards, which the state government is requiring to be implemented by 2030.
California’s Challenges
Tenet’s departure from OC is a sign of how difficult it is for for-profit hospitals to do business in California, Marcia Manker, CEO of MemorialCare’s Saddleback Memorial Center and Orange Coast Medical Center, told the Business Journal.
“California is the most heavily regulated state” in healthcare, she said. “Tenet has wanted to exit for some time.”
Michael Hunn knows well two of the hospitals being acquired because he was their CEO before he became CEO at CalOptima Health.
“I have great respect for their medical staffs—these are really important community hospitals,” Hunn told the Business Journal.
“For UCI to acquire four community-based hospitals, they will have to navigate being an academic institution with high-end services” to providing different types of services, Hunn said.
“The question will be how to integrate the systems of the UC with the community hospitals. What remains to be seen is will they merge all this together or keep them independent.”
Officials at UCI Health declined to discuss details of the acquisition, saying they are waiting for regulatory approval.
Ambulatory Focus
UCI Health paid a premium for the four hospitals, because Tenet has worked hard over the past five years to increase profitability and raise their quality service profile, Tenet CEO Sutaria told analysts on a Feb. 8 conference call.
The hospital sales represent a shift for Tenet to focus more on its ambulatory services, which grew 9.2% during 2023, above its long-term goal of 4% to 6% growth. It added 30 ambulatory centers in 2023.
“Tenet is entering a new era with a greater proportion of our performance coming from our highly efficient ambulatory surgical business and a reduced debt profile,” Sutaria said.
Wall Street has applauded the strategy, sending the shares up eightfold since the start of the pandemic; it now has an $8.9 billion market cap.
Bigger UCI Health
UCI Health, the only academic health system in the county, has a 459-bed acute care hospital in the city of Orange. The four hospitals will add another 858 licensed beds.
“At UCI Health, we are excited to add these new care sites to the UCI Health network and extend the benefits of our compassionate, high-level care, clinical innovation, and scientific discovery,” UCI Health CEO Chad Lefteris said in a statement.
“As Orange County’s only academic health system, UCI Health is unique in its ability to offer the highest level of advanced care powered by the research and innovation of a world-class public research institution.”
The acquisition also means more patients will have access to advanced therapies in the region’s largest and most diverse portfolio of clinical trials, ranging from cancer to neurosciences, digestive diseases, orthopedics and internal medicine specialties, UCI Health said.
“It is a privilege to provide world-class care to Californians and we are excited to welcome the clinicians and co-workers from these Tenet Healthcare sites to UCI Health as partners in improving the health of local communities,” Lefteris said.
