Moody's: Tenet-Vanguard Merger Will Hurt Nonprofit Hospitals

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While Dallas-based Tenet Healthcare Corp.'s $4.3 billion acquisition of Nashville, Tenn.-based Vanguard Health Systems created a surge in the for-profit hospital sector, the same may not be true for nonprofit hospitals, according to a report from Moody's Investors Service.

Moody's analysts said the Tenet-Vanguard deal is a "credit negative" for nonprofit hospitals, especially small standalone hospitals, because the resulting, larger for-profit operator will increase competition.

The newly merged company will have $15 billion in pro forma revenue and operate 79 hospitals in 30 markets. This increased scope will give Tenet "greater market power," while smaller hospitals will have to find new ways to be efficient to stave off the heighted competition. "Potential shared savings and combined resources will allow Tenet to engage in new and enhanced competitive endeavors that could threaten [nonprofit] hospitals, especially those with fewer resources," Moody's analysts wrote.

If there is one silver lining, it's that the merger increases the likelihood Tenet will acquire nonprofit hospitals in need of a capital partner or with large loads of outstanding debt, Moody's said. Vanguard had also built several relationships and joint ventures with nonprofit hospitals and health systems, and Tenet could continue along that track.

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