<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM 8-K
(CURRENT REPORT)
___________
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: NOVEMBER 10, 1998
(DATE OF EARLIEST EVENT REPORTED)
COMMISSION FILE NUMBER: 1-7293
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TENET HEALTHCARE CORPORATION
(Exact name of Registrant as specified in its charter)
NEVADA 95-2557091
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3820 STATE STREET
SANTA BARBARA, CALIFORNIA 93105
(Address of principal executive offices) (Zip Code)
AREA CODE (805) 563-7000
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS
ACQUISITION OF ASSETS
On November 10, 1998, subsidiaries of Tenet Healthcare Corporation, a
Nevada corporation (the "Company"), purchased for cash eight general
hospitals, approximately 150 physician practices and other related facilities
(the "Acquired Operations") in the Philadelphia, Pennsylvania, area from the
Allegheny Health Education and Research Foundation ("AHERF"). The Acquired
Operations were purchased by the Company's subsidiaries out of bankruptcy
through a bidding process conducted pursuant to an order of sale issued by
the United States Bankruptcy Court for the Western District of Pennsylvania.
The purchase price for the Acquired Operations was approximately $345
million (excluding the effect of certain working capital and other
adjustments), which the Company borrowed under its existing $2.8 billion bank
credit facility. As of November 20, 1998, the Company's unused borrowing
capacity under its $2.8 billion bank credit facility was $725 million. The
acquisition of the Acquired Operations is being accounted for as a purchase.
Also included in the bankruptcy estate were the assets comprising the
MCP Hahnemann University of the Health Sciences (formerly known as Allegheny
University of the Health Sciences) (the "University"), which now is owned by
a not-for-profit entity and is managed by Drexel University. In connection
with the bankruptcy proceedings, (1) AHERF's creditors agreed that $60
million of the purchase price would be directed to the University, (2) the
Company made a contribution of $30 million (which is not included in the $345
purchase price referred to above) to the University for working capital
purposes and (3) the Company entered into a long-term Academic Affiliation
Agreement with the University, pursuant to which (a) three of the eight
hospitals acquired by the Company will serve as teaching hospitals for the
University, and (b) the Company will pay the University $33 million in each
of the next two years in consideration for the University providing
supervision and training of medical residents at, and providing other support
for, the three teaching hospitals.
BACKGROUND OF THE ACQUISITION
The Company believes that there were several factors that led AHERF to
file for bankruptcy with respect to the Acquired Operations and the
University. The factors affecting the Acquired Operations include, in no
particular order, (1) the large overhead expenses incurred to operate the
Acquired Operations, (2) unfavorable (a) managed care contracts, including
capitated contracts under which AHERF agreed to meet the health care needs of
those covered in exchange for a fixed fee per covered person per month, (b)
service and supply contracts, (c) leases, and (d) employment contracts with
physicians and (3) an unfavorable operating structure.
The Company has taken and is taking various actions to address those
factors. The steps taken or being taken by the Company include (1) reducing
the overhead expenses incurred to operate the Acquired Operations, (2)
terminating through the bankruptcy proceedings unfavorable (a) managed care
contracts, (b) service and supply contracts, (c) leases, and (d) employment
contracts with physicians, and (3) putting in place a more favorable
operating structure.
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RISKS ASSOCIATED WITH THE ACQUISITION
Although the Company has taken steps to address each of the foregoing
factors, substantial risks continue to exist with respect to the Company's
operation of the Acquired Operations. For example, as a result of the
uncertainty facing the Acquired Operations throughout the bankruptcy process,
physicians, including those on the faculty of the University, began referring
their patients to other hospitals, which led to a substantial reduction in
the number of patients served by the eight hospitals that are part of the
Acquired Operations. There can be no assurance that physicians will reverse
that trend and resume referring their patients to the eight hospitals.
Furthermore, while the Company has entered into new managed care contracts to
replace some of the unfavorable managed care contracts that have been or will
be terminated in the bankruptcy proceedings, there can be no assurance that
the Company will be able to enter into additional managed care contracts. A
substantial portion of the Philadelphia area population is covered by managed
care contracts. If the Company is unable to negotiate additional contracts
with managed care providers, patients whose care is covered by those managed
care providers may be referred to competing hospitals. Even if the Company
is able to negotiate additional contracts with managed care providers, the
terms of those contracts, as well as the contracts already entered into, may
end up being unfavorable to the Company. Finally, the Philadelphia area has
an excess capacity of hospital beds. Since the supply of hospital beds
exceeds the demand for such beds, the Company may not be successful in
attracting patients or may have to spend more money on capital improvements
and other goods and services than it otherwise had planned to spend in order
to attract patients.
Other operational risks also exist. It is often the case that
non-essential maintenance is deferred by entities that are in bankruptcy. As
the Company begins operating the Acquired Operations, it may discover that
the capital needed to operate the Acquired Operations to the Company's
standards is greater than had been contemplated when the Company formulated
its bid for the Acquired Operations. The Company also may be faced with the
need to make certain staffing adjustments, as employees of a bankrupt entity
often choose to seek employment elsewhere. There can be no assurance that
the Company will be able to locate essential personnel without paying
salaries or providing benefits that are greater than the Company had
anticipated when formulating its bid. The Company also faces the
considerable task of bringing the operating and financial reporting systems
of the Acquired Operations into compliance with the rest of the Company's
operating and financial reporting systems. That task could prove to be more
time-consuming and costly than originally had been anticipated.
As noted above, the Acquired Operations include approximately 150
physician practices. Returning those practices to profitability presents the
Company with additional challenges. As part of the bankruptcy proceedings,
the employment contracts of each of the 150 physicians were rejected and
therefore terminated. Over the next approximately 120 days the Company will
attempt to negotiate new contracts with those physicians. The Company cannot
predict at this time the number of physicians with whom it will be able to
negotiate new contracts or whether any new contracts it does negotiate will
be on terms favorable to the Company.
If the Company is unable to favorably address the substantial risks with
respect to the Acquired Operations, the Company's business, financial
condition or results of operations could be materially adversely affected.
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LACK OF AUDITED FINANCIAL STATEMENTS
Another area of concern for the Company is the state of the unaudited
consolidated financial statements for the Acquired Operations. AHERF
operates on a June 30 fiscal year. AHERF's fiscal year 1997 financial
statements had been audited, but AHERF'S independent accountants have
withdrawn their audit report covering those consolidated financial
statements. Furthermore, AHERF has announced that it expects to restate its
unaudited consolidated financial statements, which include the Acquired
Operations and their related operations, for the year ended June 30, 1997.
In July 1998, AHERF filed for bankruptcy protection with respect to the
Acquired Operations and the University. AHERF has not made public any fiscal
year 1998 consolidated financial statements. Although unaudited combined
financial statements for the Acquired Operations are available for fiscal
years 1997 and 1998, AHERF'S announcement that it expects to restate its 1997
unaudited consolidated financial statements and other factors cast doubt on
the reliability of those unaudited combined financial statements, including
with respect to the assets and revenues of the Acquired Operations.
UNAUDITED FINANCIAL INFORMATION
Based on the unaudited financial information currently available to the
Company concerning the Acquired Operations (which, as explained above, may
not be reliable and accordingly, the Company makes no representation as to
their accuracy), the table below sets forth the Company's investments in and
advances to the Acquired Operations, the total assets of the Acquired
Operations and the net operating revenues of the Acquired Operations, all
expressed in millions of dollars and as percentages of the Company's
consolidated total assets as of the end of the Company's most recent fiscal
year, which was May 31, 1998, or net operating revenues for the fiscal year
then ended.
<TABLE>
<CAPTION>
AMOUNTS SHOWN AS
PERCENTAGES OF THE
COMPANY'S CONSOLIDATED
(a) TOTAL ASSETS OR
AMOUNT (b) NET OPERATING
MEASURE OF SIGNIFICANCE (IN MILLIONS) REVENUES
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<S> <C> <C>
Investments in and advances to the Acquired Operations (1) $345 (a) 2.7%
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Unaudited total assets of the Acquired Operations (2) $843 (a) 6.6%
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Unaudited net operating revenues of the Acquired Operations (3) $1,127 (b) 11.4%
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</TABLE>
(1) Investments in and advances to the Acquired Operations represent the
purchase price for the Acquired Operations.
(2) Unaudited total assets of the Acquired Operations are as of June 30,
1998.
(3) Unaudited net operating revenues of the Acquired Operations are for the
fiscal year ended June 30, 1998.
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FORWARD LOOKING STATEMENTS
Certain statements contained in this Form 8-K, including, without
limitation, statements containing the words "believes, anticipates, expects,
intends, will, may, and might" and words of similar import and statements
regarding our business strategy and plans, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements are based on management's
current expectations and involve known and unknown risks, uncertainties and
other factors, many of which we are unable to predict or control, that may
cause our actual results, performance or achievements or industry results to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors
include, among others, the following: general economic and business
conditions, both nationally and regionally; industry capacity; demographic
changes; existing laws and government regulations and changes in, or the
failure to comply with, laws and governmental regulations; legislative
proposals for healthcare reform; the ability to enter into managed care
provider arrangements on acceptable terms; shifts from fee-for-service
payments to capitated and other risk-based payment systems; changes in
Medicare and Medicaid payment levels; liability and other claims asserted
against us; competition; the loss of any significant customers; technological
and pharmaceutical improvements that increase the cost of providing, or
reduce the demand for, healthcare; changes in business strategy or
development plans; the ability to attract and retain qualified personnel,
including physicians and nurses; our significant indebtedness; the
availability of suitable acquisition opportunites and the length of time it
takes to accomplish acquisitions; our ability to integrate new businesses
with our existing operations; the availability and terms of capital to fund
the expansion of our business, including the acquisition of additional
facilities; the impact of the computer problems with respect to two-digit
codes not being able to properly recognize the year 2000 and related issues;
and other factors referenced in this Form 8-K. GIVEN THESE UNCERTAINTIES,
PROSPECTIVE INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH
FORWARD-LOOKING STATEMENTS. We disclaim any obligation to update any such
factors or to publicly announce the result of any revisions to any of the
forward-looking statements contained herein to refelct future events or
developments.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
Not applicable
(b) PRO FORMA FINANCIAL STATEMENTS
Not applicable
(c) EXHIBITS
Exhibit 99.1: Press Release, dated November 10, 1998
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Company has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
TENET HEALTHCARE CORPORATION
By: /s/ RAYMOND L. MATHIASEN
-------------------------
Raymond L. Mathiasen
Senior Vice President and
Chief Accounting Officer
November 24, 1998
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EXHIBIT INDEX
Number Exhibit
99.1 Press Release, dated November 10, 1998
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[LOGO] NEWS RELEASE
Tenet Healthcare Corporation
Headquarters Office
3820 State Street
Santa Barbara, CA 93105
Tel 805.563.6855
Fax 805.563.6871
Contact:
Media: Harry Anderson (805) 563-6816
Investors: Paul Russell (805) 563-7188
TENET COMPLETES ACQUISITION OF EIGHT PHILADELPHIA HOSPITALS
COMMEMORATIONS HERALD 'LET THE HEALING BEGIN' AS NEW ERA DAWNS
PHILADELPHIA, PA. - NOV. 10, 1998 - Tenet Healthcare Corporation (NYSE:
THC) today completed the acquisition of eight Philadelphia-area hospitals and
the Allegheny University of the Health Sciences from the Allegheny Health,
Education and Research Foundation for $345 million.
Tenet managers have immediately begun the task of reviving and
overhauling the hospitals, which had been operating as debtors in possession
under federal bankruptcy laws since July. All 14,000 current employees at
the hospitals have been offered continued employment by Tenet. The
university, which will be renamed MCP Hahnemann University of the Health
Sciences and will remain affiliated with the hospitals, is being restructured
in a new, not-for-profit organization to be managed by Philadelphia's Drexel
University.
--more--
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Together, the eight hospitals have 2,484 licensed beds and produced
annual revenues of about $1 billion in their most recent fiscal year. MCP
Hahnemann University of the Health Sciences consists of a medical school,
nursing school, and schools of public health and allied health. About 3,000
students are currently enrolled in its programs.
Commemorations marking the transfer to Tenet are scheduled to be held
today at all eight hospitals. Hahnemann University Hospital in downtown
Philadelphia is expected to host a special event with scheduled remarks by
dignitaries including Philadelphia Mayor Ed Rendell and Tenet President and
Chief Operating Officer Michael H. Focht Sr. Hundreds of employees and
university students are expected to watch as signs with new names for the
hospitals and the university are unveiled and banners proclaiming "Let the
Healing Begin" are unfurled.
--more--
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Page 3
"This is a milestone for the hospitals, for Philadelphia and for Tenet,"
said Jeffrey C. Barbakow, Tenet chairman and chief executive officer. "Tenet
has made the commitment to give these hospitals a new life, to rebuild the
confidence of patients, physicians and employees, and to ensure a healthy
future for this hospital network."
"We are grateful for the help of Gov. Tom Ridge, Mayor Ed Rendell and
dozens of others who have been invaluable in getting us to this day. We are
especially happy that Drexel University, under President Constantine
Papadakis, will be our partner in restructuring the university. One of our
foremost objectives has been to establish a secure, independent future for
the university and to maintain its affiliation with the hospitals; our
partnership with Drexel achieves that."
Michael H. Focht Sr., Tenet president and chief operating officer,
added: "Rebuilding this hospital and university network in Philadelphia will
take vision, resources and lots of hard work. We do not underestimate the
challenge ahead. But we are confident that Tenet has the experience and the
financial strength to help this network, over time, take its rightful place
in the competitive Philadelphia health care marketplace.
"We express our admiration and gratitude for the hard work and
perseverance of the hospital physicians and employees, who have done a
remarkable job during this very stressful time, and we look forward to
working together in the future."
--more--
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Completion of the transaction occurred six weeks after Tenet was
selected as the successful bidder for Allegheny Health, Education and
Research Foundation's eastern Pennsylvania assets at an auction held in U.S.
Bankruptcy Court in Pittsburgh.
As part of the transition to new ownership, Tenet has renamed the
hospitals, in most cases returning to them the traditional names they had
before their acquisition by Allegheny Health, Education and Research
Foundation. The eight, renamed hospitals are:
Hahnemann University Hospital, 618 beds;
Medical College of Pennsylvania Hospital, 465 beds;
Graduate Hospital, 330 beds;
City Avenue Hospital, 228 beds;
Parkview Hospital, 200-beds;
Elkins Park Hospital, 280 beds;
Warminster Hospital, 180 beds;
St. Christopher's Hospital for Children, 183 beds.
"Under Tenet, the physicians and employees at these hospitals who have
worked so hard under such difficult circumstances will once again have the
management and the resources they need to meet the changing health care needs
of their communities," said Lee Domanico, senior vice president of Tenet's
Pennsylvania region.
"We are committed to making these hospitals the providers of choice for
people in the communities they serve. In the weeks and months ahead, the
communities served by these hospitals will begin to notice a lot of things
starting to happen - a fresh start."
--more--
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Domanico added that his regional management team will immediately
implement strategic plans for each hospital, including refocusing and
development of core clinical programs, and establishment of local governing
boards at each hospital made up entirely of local physicians and community
leaders. In addition, physical plant improvements will begin immediately.
As part of the transaction, Tenet also pledged to uphold 12 specific
commitments to the people of Philadelphia. These commitments, which were
reached with assistance of Mayor Ed Rendell, include continuation of the
hospitals' existing policies regarding care for the poor and uninsured.
Tenet also intends to institute an active community benefits program at each
facility, to continue vital community outreach programs such as wellness
fairs and low-cost inoculations, and to re-establish active volunteer
programs at each facility.
Based in Santa Barbara, Calif., Tenet Healthcare, through its
subsidiaries, owns and operates 128 acute care hospitals with more than
30,000 beds and numerous related healthcare services. The company employs
approximately 130,000 people serving communities in 18 states and services
its hospitals from a Dallas-based operations center. Tenet's name reflects
its core business philosophy: the importance of shared values between
partners - including employees, physicians, insurers and communities - in
providing a full spectrum of quality healthcare. Tenet can be found on the
World Wide Web at www.tenethealth.com.
# # #
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(Certain statements in this release may constitute forward-looking
statements. They are based on management's current expectations and could be
affected by numerous factors and are subject to various risks and
uncertainties. Certain of those risks and uncertainties are discussed in the
Company's filings with the Securities and Exchange Commission, including the
Company's Annual Report on Form 10-K. Do not rely on any forward-looking
statement, as we cannot predict or control many of the factors that
ultimately may affect our ability to achieve the results estimated. We make
no promise to update any forward-looking statement, whether as a result of
changes in underlying factors, new information, future events or otherwise.)
