Editor's Page: Objects of Desire
What the Tenet-USPI joint venture says about surgery centers.
Dan O'Connor
Few saw last month's Tenet-USPI mega-merger coming. But in true if-you-can't-
beat-them, buy-them fashion, one of the country's biggest hospital chains paid $425 million for one of the country's biggest ambulatory surgery center chains to form the country's largest provider of ambulatory surgery.
Tenet Healthcare will also assume about $1.5 billion in United Surgical Partners International debt as part of the deal that will give Tenet 50.1% control over the company. Tenet will have options to buy the rest of USPI later.
The joint venture, which will maintain the United Surgical brand on the facilities, will have ownership interest in 244 ASCs, 16 short-stay surgical hospitals and 20 imaging centers in 29 states. It will have partnerships with more than 4,000 physicians and 50 health systems. Before the deal, Tenet — the third-largest for-profit hospital chain in the country, with 83 hospitals — had only 44 ASCs. Why was Tenet so
hot for more surgery centers? Margins and market forces.
• Margins. With operating margins of 30 to 35%, ASCs can be more profitable than full-service hospitals. "The reason margins are so high
is that you don't have all the overhead and cost of a 24-7 hospital," says Tenet president and CEO Trevor Fetter. USPI has built its business on the 3-way proven partnership model with health systems and physicians.
Relations can sometimes be strained between hospitals and surgical centers. ASCs have long been vilified as focused factories that cher-
rypick productive surgeons who perform profitable cases on well-insured patients. That disdain is fading. "The partnership accelerates
