UNH UnitedHealth Group Inc

By Dana Mattioli and Melanie Evans 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 19, 2018).

UnitedHealth Group Inc. is among suitors exploring an acquisition of Tenet Healthcare Corp.'s health-care-management subsidiary, according to people familiar with the matter, as the industry giant pursues further expansion.

Tenet, one of the largest U.S. hospital companies, has said it would weigh a sale of the unit, Conifer Health Solutions, which provides services to hospitals and physician groups. Tenet said it would make a decision in the first half of 2018 on Conifer, which accounted for about 8% of its revenue last year.

It isn't clear whom the other suitors may be, and it isn't guaranteed UnitedHealth or anyone else will ultimately strike a deal for the business, which Tenet has said it may not sell.

Should there be a deal, it could value Conifer at $2 billion or more, analysts have estimated.

Minnetonka, Minn.-based UnitedHealth has been an aggressive acquirer in an industry undergoing a wave of consolidation. Conifer, which generated $1.6 billion in revenue last year from medical-billing and care-management services, would add to deals by UnitedHealth to bolster its health-services arm, Optum.

Optum has built up one of the biggest pharmacy-benefit managers and a huge array of doctor practices and surgery centers, as UnitedHealth positions itself among companies looking to reshape the U.S. health-care industry.

Conifer would come under a different segment of Optum's business, which serves as a contractor and consultant to health-care providers, particularly hospital systems. Earlier, Optum bought the health-care business of the Advisory Board Co., an adviser to hospital systems.

One potential complication for UnitedHealth: Some hospital operators may be leery of working with Conifer if it becomes part of Optum, whose surgery centers and clinics compete directly with them in many markets. Also, UnitedHealth is the parent of the biggest U.S. health insurer, UnitedHealthcare, which negotiates prices with hospitals. UnitedHealth says it maintains a wall between its insurance operations and Optum.

Tenet announced the possible divestiture in December, two months after its longtime chief executive left the company as it grappled with pressure from an activist investor. Tenet, like other hospital owners, is also under pressure as more medical care moves to less-costly clinics and ambulatory-surgery centers. Tenet has moved to diversify away from hospitals with its acquisition of ambulatory-center operator United Surgical Partners International Inc.

Tenet has continued to restructure this year, announcing in January it would expand previously announced job cuts to 2,000, or about 2% of its workforce. Lately, Tenet's business has improved, and its shares have more than doubled this year. The company said Wednesday it reached a deal to sell three Chicago-area hospitals to Pipeline Health LLC and TWG Partners LLC.

A Conifer sale would be a boon to its minority owner, nonprofit-hospital system Catholic Health Initiatives, or CHI. The Englewood, Colo.-based CHI owned roughly 24% of Conifer and accounted for about 35% of its revenue at the end of last year, Tenet securities filings show.

CHI last year said it reached a definitive agreement to merge with Dignity Health, a San Francisco nonprofit-hospital system, to create one of the largest U.S. health systems.

The merger, however, raised questions among analysts regarding Conifer's long-term business with CHI. Dignity Health in 2013 formed a joint venture with Optum to create a medical-billing rival to Conifer. A deal with UnitedHealth could allay such concerns.

Anna Wilde Mathews contributed to this article.

Write to Dana Mattioli at dana.mattioli@wsj.com and Melanie Evans at Melanie.Evans@wsj.com

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July 19, 2018 02:47 ET (06:47 GMT)

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