For One Hedge Fund, a Bet on the Affordable Care Act Sours


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Three-quarters of its hospitals now command a leading share of their markets, he said. And Tenet plans to sell eight hospitals, including two in Philadelphia, as well its facilities in Britain for nearly $1 billion. The moves will allow Tenet to pay down its debt and focus on its best-performing facilities, he argued.

“Despite the industry headwinds, you should have confidence in Tenet’s future,” Mr. Fetter told investors.

It has been a stark turnabout for the industry.

In early 2012, Mr. Robbins took the stage at an annual New York conference in which hedge fund managers try to outdazzle one another with their best picks. His advice: Buy hospital stocks.

Glenview, which before 2011 had never owned a hospital stock, emerged as a significant investor, taking stakes in for-profit giants like HCA Healthcare, Health Management Associates and Tenet.

The investment thesis was simple. The Affordable Care Act would benefit hospitals by providing coverage for tens of millions of previously uninsured Americans.


Larry Robbins, the head of Glenview Capital Management, at a charity benefit in New York in May. Despite losses, his hedge fund has held on to Tenet Healthcare.

Rebecca Smeyne for The New York Times

For a time, Mr. Robbins was right. But the law, whose fate remains unclear as Republicans contemplate another push to unravel it, has provided only a temporary increase in demand for hospital services.

Many for-profit hospital chains began reporting weaker results, driven largely by a steady decline in patients being admitted. Hospital stocks went into a tailspin, hurting Glenview and other investors.

“I’ve failed to protect your capital,” Mr. Robbins wrote in a letter to investors in the fall of 2015, promising to forfeit his pay for the year.

Hospitals are also being battered as medical care is increasingly delivered outside a hospital’s walls in outpatient settings like surgery centers, free-standing emergency rooms and urgent-care clinics. Emergency room visits and admissions are declining in hospitals across the country.

Looking at hospital discharges from 2013 to 2016, “you saw almost an 11 percent drop in hospital admissions,” said Sheryl Skolnick, director of United States equity research at Mizuho Securities U.S.A. “That’s pretty stunning considering that period includes the A.C.A reform.”

Some of the shift can be explained by changes in consumer preferences. Seeking speed, convenience and lower expenses, consumers are popping into urgent-care centers instead of hospital emergency rooms for modest ailments or treatments.

But some of the drop is being driven by health insurers, which are taking a harder line on expensive hospital care. Anthem, one of the nation’s largest insurers, recently announced that some of its health plans would no longer cover an M.R.I. or CT scan from a hospital unless medically necessary.

Adding to the decline is the steady expansion in health plans that require consumers to pay steep deductibles and a large share of their medical bills out of pocket. Last year, nearly 25 million Americans who were insured through an employer were enrolled in a high-deductible plan, according to a new analysis.

The for-profit hospital chains are adapting, with mixed results.

On one end of the spectrum, HCA has added hospitals and moved into free-standing emergency rooms and other businesses outside the hospital. Other large nonprofit systems have purchased physician groups as a way to shift more of their business to outpatient settings.

On the other end, Tenet and Community Health Systems are struggling. Both systems, which made major acquisitions of rival chains, were left with extremely high debt. Paying it down has diverted cash that could have been used to invest in buying clinics or doctors’ groups.

In 2013, Tenet bought Vanguard Health Systems in a deal valued at $4.3 billion, adding to its debt, which stands at $15 billion. Tenet said the acquisition had allowed it to increase its clout in important markets like San Antonio and Phoenix.


Hahnemann University Hospital in Philadelphia, center and right, is one of eight hospitals that Tenet is selling in the United States.

Likewise, Community Health Systems acquired troubled Health Management Associates in 2014, a deal that has pushed its debt to more than $14.7 billion. The company says it has paid down about $2 billion of its debt and will continue its efforts.

These are “two very large, very highly levered companies that are not operating particularly well in a tough operating environment,” said Jessica Gladstone, a senior vice president at Moody’s Investors Service, which follows the debt of for-profit hospitals.

Both companies are also shifting their focus to care delivered outside the hospital. Tenet says the percentage of its revenue from its hospitals has dropped to 61 percent, from 88 percent five years ago. The company says it now has nearly 500 outpatient facilities.

Many of those facilities are under an entity called United Surgical Partners International, a joint venture with a private-equity firm. This summer, Tenet paid $716 million to increase its stake in the business.

None of those moves appeared to satisfy Mr. Robbins. In mid-August, Glenview pulled its two executives from Tenet’s board of directors, citing “irreconcilable differences.” A spokesman for Glenview declined to comment.

A showdown between Glenview and Tenet may be in the offing.

To fend off a possible takeover from Glenview or someone else, Tenet adopted a so-called poison pill in late August. Its chief executive, Mr. Fetter, also agreed to step down by March, and the company will replace some board members.

“New perspectives will be critical at this point as Tenet approaches its 50th year,” Mr. Fetter told investors at the conference.

It is unclear whether Mr. Robbins has a better strategy. While he has not said what he wants, there is widespread speculation that he could be pushing for Tenet to spin off or sell businesses unrelated to hospitals, such as Conifer Health Solutions, which provides health care management services.

There is also the possibility that Mr. Robbins follows the same playbook he used with Health Management Associates. There, he persuaded shareholders to approve an entire new slate of directors for H.M.A. that had been nominated by his fund. Ultimately, H.M.A. was sold to Community Health.

“Given the circumstances,” said Emily Evans, the managing director of health policy with the research firm Hedgeye Risk Management, Tenet is “probably doing what should be done in order to survive into the next era of health care, which is going to look very different than the last 50 years.”

“That takes time, and that takes patience,” she said. “I can’t see clearly what Glenview wants and what is reasonable to expect here.”

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