South Carolina’s highest court favors Tenet over Atrium

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A disappointing string of events at Atrium Health continued last week when the South Carolina Supreme Court cleared the path for Tenet Healthcare to add a hospital in Fort Mill, S.C., a fast-growing town across the state border from Charlotte. Atrium has long wanted to expand to the city, where population has soared with people and businesses attracted to the Palmetto State’s generally lower costs.

Tenet won the right to build a $120 million, 100-bed hospital in 2006, supplementing its 283-bed Piedmont Medical Center in Rock Hill. Appeals by the dominant Charlotte area hospital systems — Carolinas HealthCare (now Atrium Health) and Novant Health — have gone back and forth in the courts, with Novant eventually withdrawing its filing.

Aside from the legal issues, for-profit Tenet’s victory over not-for-profit Atrium is interesting from a financial perspective. Tenet is a textbook example of many of the contradictions of health care.

  • The company had net cumulative losses of $891 million from 2014-18.
  • Yet CEO Trevor Fetter, who stepped down in October 2017, received $47 million in compensation in his last three years. Atrium’s pay for former CEO Michael Tarwater and current chief Gene Woods has drawn criticism, but it’s much less than Fetter’s take.
  • It has $14.6 billion in debt that is mostly rated as less-than-investment grade. It spends $1 billion in annual interest payments.
  • Its shares trade for nearly 40% less than five years ago.
  • Less than 30% of Tenet’s revenue comes from federal Medicare or Medicaid programs, compared with more than 50% at many N.C. hospital systems. In other words, Tenet tends to attract more private-pay customers.
  • In 2016, it agreed to pay $513 million to resolve criminal charges and a civil case that accused two Atlanta-area hospitals of paying kickbacks to gather patient referrals.

Atrium, with about $10 billion in annual revenue and net profit of almost $1.1 billion in its most recent fiscal year, has a more stable financial record. It doesn’t have to worry about private investors or a $1 billion annual interest tab, which hopefully could be plowed into improving care or lowering costs. That profit includes investment gains. It had proposed a smaller, 64-bed hospital.

But South Carolina officials have generally shown little favor for their big neighbor, expressing concern that allowing a foothold in Fort Mill would hurt the Rock Hill medical center and reduce competition. Tenet also may have more political pull in South Carolina, where it has hospitals in Hardeeville, Hilton Head Island and Mount Pleasant.

Atrium Health said it was disappointed by the ruling and is reviewing its options. It owns more than 100 acres in York County, according to the Rock Hill Herald. Piedmont Medical CEO Mark Nosacka said details on construction of a new hospital haven’t been determined, the Herald reported.

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