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

Wagering the new federal healthcare law will be a boon, the millionaire investor Ray Robbins bet big on hospital stocks 5 years ago. Individuals investments helped propel his hedge fund, Glenview Capital Management, towards the ranks from the top-performing funds in 2013.

Since that time, the bet has soured. Glenview endured steep losses because the stocks of numerous for-profit hospital chains sank, hurt by weak earnings and, more lately, by uncertainty within the lasting impact from the law, the Affordable Care Act.

While Mr. Robbins dramatically scaled back his fund’s exposure, he held onto Tenet Healthcare, the big hospital chain, that is now an aching place in the portfolio. Glenview, the biggest investor in Tenet, has witnessed about $150 million of their money disappear because the stock has stepped by nearly three-quarters from the high 3 years ago.

Analysts and investors are holding their breath, waiting to find out if Mr. Robbins will wage a fight for charge of the board at Tenet. In 2013, he won a proxy war from the hospital chain Health Management Associates.

Tenet is preparing its defenses. A week ago, Tenet’s longtime leader, Trevor Fetter, who’ll step lower the coming year, outlined steps the organization has had to change within the quickly evolving industry.

Three-quarters of their hospitals now command a number one share of the markets, he stated. And Tenet intends to sell eight hospitals, including two in Philadelphia, too its facilities in great britan for pretty much $1 billion. The moves allows Tenet to pay for lower its debt and concentrate on its best-performing facilities, he contended.

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

It’s been a stark turnabout for that industry.

At the begining of 2012, Mr. Robbins required happens in an annual New You are able to conference by which hedge fund managers attempt to outdazzle each other using their best picks. His advice: Buy hospital stocks.

Glenview, which before 2011 had not owned a medical facility stock, become a substantial investor, taking stakes set for-profit giants like HCA Healthcare, Health Management Associates and Tenet.

An investment thesis was simple. The Affordable Care Act would benefit hospitals by supplying coverage for millions of formerly uninsured Americans.

For some time, Mr. Robbins was right. However the law, whose fate remains unclear as Republicans contemplate another push to solve it, provides merely a temporary rise in interest in hospital services.

Many for-profit hospital chains started reporting less strong results, driven usually by a stable loss of patients being accepted. Hospital stocks entered a tailspin, hurting Glenview along with other investors.

“I’ve unsuccessful to safeguard your capital,” Mr. Robbins authored inside a letter to investors in nov 2015, promising to forfeit his spend the money for year.

Hospitals will also be being battered as health care is more and more delivered outdoors a hospital’s walls in outpatient settings like surgery centers, free-standing emergency rooms and urgent-care clinics. Er visits and admissions are declining in hospitals across the nation.

Searching at hospital discharges from 2013 to 2016, “you saw almost an 11 percent stop by hospital admissions,” stated Sheryl Skolnick, director of U . s . States equity research at Mizuho Securities U.S.A. “That’s pretty stunning thinking about the period includes the A.C.A reform.”

A few of the shift could be described by alterations in consumer preferences. Seeking speed, convenience minimizing expenses, individuals are popping into urgent-care centers rather of hospital emergency rooms for modest ailments or treatments.

But a few of the drop has been driven by health insurers, that are going for a harder line on costly hospital care. Anthem, among the nation’s largest insurers, lately announced that a number of its health plans would no more cover an M.R.I. or CT scan from the hospital unless of course medically necessary.

Contributing to the decline may be the steady expansion in health plans that need customers to pay steep deductibles along with a large share of the hospital bills up front. This past year, nearly 25 million Americans who have been insured with an employer were signed up for a higher-deductible plan, according to a different analysis.

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

On a single finish from the spectrum, HCA has added hospitals and moved into free-standing emergency rooms along with other companies outdoors a healthcare facility. Other large nonprofit systems have obtained physician groups in an effort to shift much more of their business to outpatient settings.

Alternatively finish, Tenet and Community Health Systems are battling. Both systems, which made major acquisitions of rival chains, wound up with very high debt. Having to pay it lower has diverted cash that might have been used to purchase buying clinics or doctors’ groups.

In 2013, Tenet bought Vanguard Health Systems inside a deal worth $4.3 billion, contributing to its debt, which is $15 billion. Tenet stated the purchase had permitted it to improve its clout in important markets like Dallas and Phoenix.

Likewise, Community Health Systems acquired troubled Health Management Associates in 2014, an offer which has pressed its debt to greater than $14.7 billion. The organization states it’s compensated lower about $2 billion of their debt and can continue its efforts.

They are “two large, very highly levered companies that aren’t operating particularly well inside a tough operating atmosphere,” stated Jessica Gladstone, a senior v . p . at Moody’s Investors Service, which follows your debt of for-profit hospitals.

Both information mill also shifting their focus of looking after delivered outdoors a healthcare facility. Tenet states the proportion of their revenue from the hospitals has dropped to 61 percent, from 88 percent 5 years ago. The organization states it presently has nearly 500 outpatient facilities.

A lot of individuals facilities they are under a business known as U . s . Surgical Partners Worldwide, some pot venture having a private-equity firm. This summer time, Tenet compensated $716 million to improve its stake in the industry.

None of individuals moves made an appearance to fulfill Mr. Robbins. In mid-August, Glenview pulled its two executives from Tenet’s board of company directors, citing “irreconcilable variations.” A spokesman for Glenview declined to comment.

A showdown between Glenview and Tenet might be within the offing.

To battle a potential takeover from Glenview or another person, Tenet adopted a so-known as poison pill at the end of August. Its leader, Mr. Fetter, also decided to step lower by March, and the organization will replace some board people.

“New perspectives is going to be critical at this time as Tenet approaches its 50th year,” Mr. Fetter told investors in the conference.

It’s unclear whether Mr. Robbins includes a better strategy. As they hasn’t stated what he wants, there’s prevalent speculation that he or she is pushing for Tenet to spin off or sell companies unrelated to hospitals, for example Conifer Health Solutions, which supplies healthcare management services.

There’s also the chance that Mr. Robbins follows exactly the same playbook he combined with Health Management Associates. There, he convinced shareholders to approve a whole new slate of company directors for H.M.A. that were nominated by his fund. Ultimately, H.M.A. was offered to Community Health.

“Given the conditions,” stated Emily Evans, the md of health policy using the research firm Hedgeye Risk Management, Tenet is “probably doing what ought to be done to live in to the next era of healthcare, which will look completely different compared to last half a century.Inches

“That needs time to work, which takes persistence,” she stated. “I can’t make out the print what Glenview wants and what’s reasonable to anticipate here.”