After working on more than 45 acute care hospital acquisitions as a healthcare attorney — along with medical groups, surgery centers and other financing transactions — Radha Savitala co-founded Tenor Health Foundation with a clear mission: rebuild financially distressed hospitals through a community-first, nonprofit model that rejects the old formula of top-down expansion and debt-heavy deals.
Tenor Health acquired Sharon (Pa.) Regional Hospital — a former Steward Health Care facility — in January and reopened the hospital in May. Now, the nonprofit plans to acquire three more Pennsylvania hospitals from Franklin, Tenn.-based Community Health Systems as it looks to turn around other financially distressed facilities, taking a page from the playbooks of larger operators such as Ontario, Calif.-based Prime Healthcare.
Ms. Savitala recently joined the “Becker’s Healthcare Podcast” to discuss why she believes traditional hospital M&A strategies no longer work, why Pennsylvania has become ground zero for closures, and how Tenor is finding new life — and local partnerships — in facilities others have written off.
Editor’s note: This is an excerpt from the podcast episode. Click here to listen to the full episode. Responses were lightly edited for length and clarity.
Question: What inspired you to launch Tenor Health Foundation, and how does Tenor’s mission differ from some of the more traditional healthcare investment or advisory models we see today?
Radha Savitala: There are a lot of challenges in healthcare today, and each year we’ve seen a year-over-year increase in hospitals at risk of closure nationwide. Many of these facilities are rural. We’ve also seen the rise and fall of traditional for-profit models.
The market today is dominated by large health systems, but many academic and tertiary centers have also captured a significant share. What we’ve observed — and the reason we created the nonprofit — is the need to operate on a multifaceted level, working not only with local municipalities, but also with state legislatures and foundations to bring all stakeholders together and truly build a local healthcare market.
The traditional notion of simply putting dots on a map and acquiring hospitals doesn’t make sense anymore. You need market focus to achieve the economies of scale required for recruitment, supply chain, labor costs and managed care agreements. That’s why Tenor Health Foundation was created: we have individuals who’ve done this nationally and understand both the pros and cons.
We’re focused on creating a local, community- and stakeholder-driven model, which has already proven successful for Sharon Regional and others who’ve adopted it.
Q: Tenor plans to acquire three more hospitals in Pennsylvania — the state with the most hospital closures over the past few years. Why do hospitals’ financial challenges appear to be more acute in Pennsylvania compared to other states? And where do the opportunities arise for hospital turnaround operators such as Tenor?
RS: There are several reasons behind the hospital closures in Pennsylvania. First, the state has a higher number of hospitals than many others — that’s a big factor. Second, if you look back at the acquisitions that happened about 10 to 15 years ago, we’ve seen that some systems likely overpaid. Once they hit their expected rate of return, we started to see a wave of divestitures and exits.
Another issue is Medicaid. Reimbursement on the acute care side in Pennsylvania isn’t strong. While the state does provide relatively good reimbursement for behavioral health, Medicaid alone can’t sustain these hospitals. That’s why it’s so important to look at patient mix and ensure you’re negotiating contracts that support the goal of staying local.
You also have to assess which service lines are truly sustainable for the community. A strong local healthcare market is essential. When you have that market share, you’re more likely to achieve economies of scale and negotiate more favorable managed care agreements to help offset low Medicaid rates. Ultimately, you need hands-on leadership that understands both the health of the hospital and the broader needs of the community.
Q: President Trump recently revoked an executive order on competition, with the rollback potentially reducing red tape and leading to less scrutiny around M&As. What hospital M&A trends do you expect to gain traction over the coming years, and what do you think we might see less of?
RS: I’m not sure there are many systems today that are willing to commit significant resources to acquisitions. Even during the first Trump administration, in the 2018–2019 period, we saw the FTC begin to crack down on some of these deals. So I think regulators are still going to be mindful of competition.
Having a highly concentrated system within a certain geographic area has been shown to negatively impact communities — leading to higher costs of care, lower quality, and other concerns that can’t be ignored, even though the executive order on competition has essentially been rolled back. That’s why communities really need to advocate for themselves. They should be saying, “Hey, we need two hospitals. We need competition.” Because at the end of the day, no patient wants to be funneled into a large tertiary academic medical center with long wait times and months-long delays for primary care appointments. It just doesn’t work for them anymore. I think communities are going to stay very alert, especially when it comes to service reductions in their region.
Q: Are there still compelling reasons to pursue aggressive acquisition strategies in the current climate?
RS: I wouldn’t necessarily categorize it as aggressively pursuing acquisitions, but I do think there’s still value in financially distressed hospitals — at least in some of them. Hospitals that still offer comprehensive services and serve a wider primary service area are worth preserving, as long as the volumes support it.
If patient volumes are historically low, it becomes harder to justify keeping a facility open, especially if there are other hospitals in the region that can adequately serve that population. I’m not saying every hospital should be saved, but when you have a better patient mix and broader service reach, the focus needs to be on whether services can be provided at a “lower cost.”
What does that mean? It means you have to take a hard look at your debt structure. You need to evaluate your staffing, and not just from a cost-cutting standpoint. If you cut too deeply, you may actually limit your ability to serve more patients. And in many states, there are strict nurse-patient ratios that must be followed. So the traditional notion of simply cutting and reducing workforce doesn’t work. You have to assess every department to ensure you’re operating effectively and efficiently.
It’s also critical to have strong strategies with managed care organizations. In many cases, those payers are open to working with independent community hospitals because sending patients to large tertiary academic centers often costs them more. So being diligent in negotiations and keeping your finger on the pulse of those relationships is key. Ultimately, it comes down to targeting the right markets and ensuring you can secure enough market share. Pursuing independent hospitals in a state where you don’t already have a presence is much tougher now than it used to be.
Q: Tenor has acquired and reopened one hospital in Pennsylvania, and I know you have a couple more potential acquisitions in the pipeline. Looking ahead over the next five years, what’s your strategic roadmap? How do you see Tenor growing, and what’s your overall goal moving forward?
RS: Our strategy really builds on what we’ve already been focusing on at Sharon Regional and with the other acquisitions we have in the pipeline — primarily the two in the Northeast that have been made public. We don’t have any other acquisitions in the pipeline at the moment, but looking three to five years ahead, our vision is for the hospitals under Tenor to be stable, vital community assets that continue to work in partnership with FQHCs, health plans and other providers.
We’re very open to strategically partnering with other health systems, especially when it comes to service lines where collaboration can improve efficiency, cost or access. If another provider can deliver a particular service more effectively or at a lower cost for our community, we’re happy to partner.
For example, at Sharon Regional, we’re currently exploring a partnership with another health system for interventional cardiology, and we’re also in discussions with a separate system to bring oncology services to the community. These kinds of strategic alliances are critical to long-term sustainability.
Looking further ahead, if it makes sense — and we can diversify while still maintaining market share — we’d like to expand into other markets. But any expansion would follow the same disciplined approach: being responsible with acquisition structure, purchase price and debt.
We’ve seen how the traditional model — especially in the private equity space — hasn’t worked. Overpaying for hospitals and taking on heavy debt has failed financially, hasn’t served communities well, and has drawn increasing scrutiny from regulators. Our belief is that being responsible will yield long-term results: better quality, stronger patient safety, and greater financial stability for the system as a whole.
Q: You mentioned potentially expanding into new markets down the line? Would those markets be adjacent to Pennsylvania or in different regions?
RS: I think we’re open. To the extent that there’s an opportunity with a strong market presence and the potential to achieve economies of scale, we’d certainly consider it, especially if it’s closer to Pennsylvania. I’m a bit hesitant to expand too far — say, across the country — but if it makes strategic sense and we can maintain operational stability and form the right alliances, we’d be willing to look at it. That said, it’s critical that wherever we go, the core principles and mission of Tenor Health Foundation stay intact.
