Tenet Healthcare Corp., the largest hospital operator in Los Angeles County, is considering buying the financially troubled Daniel Freeman hospitals in Inglewood and Marina del Rey after another potential buyer didn’t like what it saw and walked away.
Tenet entered into an exclusive due diligence period last month in which it is intensively reviewing the two hospitals’ operations in advance of a possible purchase.
Tenet’s interest comes after Catholic Healthcare West, the large San Francisco-based nonprofit, which is having its own troubles, decided not to pursue a purchase after informal talks with Freeman owner Carondelet Health Systems were discontinued, an industry source said.
“They were in worse financial shape than (CHW) realized,” the source said.
Closure of the two Daniel Freeman hospitals the 360-bed Inglewood facility and the 138-bed Marina del Rey facility would be a devastating blow to the area’s emergency care system, county officials have said.
The Inglewood facility’s emergency room alone served nearly 7,000 patients brought in by the 911 system in the 1999-2000 fiscal year. But the two hospitals, which are operated as a unit, posted a combined net loss of $12 million in the fiscal year ended June 30, 2000.
Catholic Healthcare West was seen in the industry as a perfect suitor for the two facilities, because it already operates nearby Robert F. Kennedy Hospital in Hawthorne. However, it has been struggling financially, posting $607 million in operating losses over the past two years and is in the midst of a corporate restructuring intended to save $100 million annually.
Officials from CHW and Carondelet, based in St. Louis, declined to comment on any talks the two sides had.
Tenet, meanwhile, like some other large chains in the industry, has been posting strong financial results. It reported an increase in net income to $198 million (60 cents per diluted share) for the fiscal third quarter ended Feb. 28, up from $152 million (48 cents a share) in the like-year earlier period. Third-quarter revenues were $3 billion, vs. $2.9 billion in the year-earlier quarter.
The hospital chain attributed the results to higher reimbursements in its Medicare and managed-care operations and strong growth in admissions.
The chain not only has the financial wherewithal to purchase the Daniel Freeman hospitals, but a pressing local interest. It operates Centinela Hospital Medical Center, which is only a mile and a half away from the Inglewood facility. A closure of the Daniel Freeman hospitals could swamp the Centinela facility, industry officials said.
“No one wants to see Daniel Freeman close, and quite frankly, neither the public sector nor the private sector can afford to see it close,” said Jim Lott, spokesman for the Healthcare Association of Southern California, the region’s hospital industry trade group. “They offer just too much of the indigent and Medi-Cal care in this county.”
Harry Anderson, a Tenet spokesman, said it should become clear “relatively soon” whether the chain is interested in purchasing the two hospitals.
“There is no deal, but we are taking a close look,” he said. “We are certainly interested enough in these hospitals to see if they are a good fit and see if we can bring resources to them to make them healthy and successful.”
