CommonSpirit Health is spending big to separate itself from a longstanding revenue cycle management relationship with Tenet Healthcare’s Conifer Health Solutions, the systems announced Monday morning.
In 2012, the large nonprofit system had signed a 20-year deal (amended in 2015) to outsource revenue cycle services to the Tenet subsidiary, in which CommonSpirit held a 23.8% equity stake.
That arrangement is coming to an end, with CommonSpirit returning its stake in Conifer to Tenet in a deal retroactively effective Jan. 1, 2026. The revenue cycle services will continue consistent with prior terms through the end of this year, after which executives from both organizations said CommonSpirit will begin doing that work in house.
“CommonSpirit came together with Conifer and Tenet in this transaction to support our multiyear system integration strategy,” Michael Browning, senior executive vice president and chief financial officer of CommonSpirit, said in an investor release from Tenet. “Conifer has been a strong and reliable revenue cycle partner since 2012, bringing consistency to a previously fragmented environment in the former Catholic Health Initiatives portfolio. Conifer meaningfully contributed to these hospitals achieving 100% of their cash collection goals.”
The decision brings substantial exchanges in cash between the parties, largely to Tenet’s benefit.
To settle the terminated contract ahead of its 2032 conclusion, CommonSpirit will be sending about $1.9 billion to Tenet in installments over the next three years. That starts with $540 million in the ongoing quarter and will be followed by three annual installments of $453 million each during the first quarters of 2027, 2028 and 2029, Tenet Executive Vice President and Chief Financial Officer Sun Park explained during a Monday morning investor call.
In exchange for the equity in Conifer, and to address the elimination of CommonSpirit’s capital account, Tenet has agreed to pay CommonSpirit about $540 million. That transfer is retroactively effective Jan. 1, which Park noted effectively offsets the initial payment from CommonSpirit for the terminated contract. The deals together reduce Tenet’s redeemable non-controlling interest and other liabilities on its balance sheet by about $885 million, and also increase Tenet’s additional paid in capital by about $305 million.
Tenet CEO Saum Sutaria, M.D., presented the deal to analysts and investors as a “highly accretive asset sale [that] happened to be a contract rather than what we’ve done in the past, which are hospitals.”
For Tenet, the combination of cash payments, a reduction in material balance sheet liabilities (CommonSpirit’s capital account), and the value of the obtained shares in Conifer brings the deal’s total value to $2.65 billion, the CEO said.
“This amounts to an approximate just under 14x multiple on the impacted 2025 adjusted EBITDA (minus [non-controlling interest]),” Sutaria said during Monday’s call. “We've spoken in the past about our belief that there was hidden value in Conifer relative to our overall equity value. This transaction is a clear example of that.”
The CEO said CommonSpirit’s decision to insource its revenue cycle functions is understandable amid the organization’s broader transformational work, and dismissed a question from an analyst regarding fears of Conifer being able to retain its other clients. “I don’t think that’s even a topic of conversation,” he replied.
Sutaria added that gaining full strategic control of the subsidiary “is important for the types of investments we’re going to be making in the future.”
“As we look to the future, we see opportunities to leverage Conifer's scale to advance offshoring automation and apply AI to drive greater efficiencies and enhance capabilities to better serve clients,” he said. “It is imperative these investments continue and in a manner that is aligned throughout our organization. This transaction returns full strategic control of our growth and future in Conifer to Tenet.”
CommonSpirit’s management did not give additional commentary on the deal outside of Browning’s statement in the Tenet release and a regulatory notice outlining the transaction’s terms. The nonprofit, which reported about $40.1 billion of revenue for its most recent fiscal year and is in the midst of a structural turnaround, heavily emphasized work on portfolio realignment and systemness in a recent presentation at the J.P. Morgan Healthcare Conference. CommonSpirit’s next quarterly financial report is slated to drop in the coming weeks, and an investor relations webcast is scheduled for March 3.
Tenet, which logged $20.7 billion of revenue across 2024, is scheduled to report its Q4 and FY2025 financial results on Feb. 11. Executives refrained from discussing those results during this morning’s call, but shared that the company now expects its adjusted EBITDA for the year will be at the upper end of its guidance range of $4.47 billion to $4.57 billion, due largely to same-store revenue growth and managed expenses. The company's shares are trading roughly on par with open as of early Monday afternoon.