Health Net Restores Ties with Tenet

Yesterday, Health Net Inc. (HNT - Analyst Report) announced that its subsidiaries have inked new two-year agreements with Tenet Healthcare Corp. (THC - Analyst Report). The agreements allow Health Net’s members to utilize the medical care facilities offered by 11 hospitals of the latter in California.

Consequently, the members of Health Net have regained access to the 6 hospitals of Tenet Healthcare in Southern California, which were removed from the health maintenance organization’s network in Dec 2012. The company had agreements with Desert Regional Medical Center, Fountain Valley Hospital and Medical Center, John F. Kennedy Memorial Hospital, Lakewood Regional Medical Center, Los Alamitos Medical Center and Placentia Linda Hospital. These hospitals have been re-added to Health Net’s network retrospectively, thereby eliminating the impact of the agreement termination.

Health Net’s subsidiaries had terminated the 3-year contracts with these 6 hospitals of Tenet Healthcare, in effect from Dec 21, 2012, due to the inability of the companies to reach an agreement regarding the terms for extension. Health Net was in favor of changing the reimbursement rates offered by Tenet Healthcare considering the market conditions in California.

The company wanted to bring the reimbursement rate at par with the medical consumer price index, which exceeded the 3% mark at that time. Additionally, Health Net wanted the reimbursement rate for those programs, which are financed by the state or the federal government, to be based on the funding of these programs.

However, these terms were not acceptable to Tenet Healthcare. Consequently, the two companies failed to reach an agreement and Health Net decided to use its contractual option to terminate the agreements, which were already on the verge of expiration, with all 6 Tenet Healthcare hospitals.

The agreement will help Health Net offer good quality health care with affordable benefits to its members. The other 5 hospitals included in the agreement are Doctors Hospital of Manteca, Doctors Medical Center of Modesto, San Ramon Regional Medical Center, Sierra Vista Regional Medical Center in San Luis Obispo, and Twin Cities Community Hospital in Templeton.

Both Health Net and Tenet Healthcare currently carry a Zacks Rank #3 (Hold). Other stocks in the medical sector that are currently performing well include Acadia Healthcare Company, Inc. (ACHC - Snapshot Report) – Zacks Rank #1 (Strong Buy) and American Caresource Holdings, Inc. (ANCI - Snapshot Report) – Zacks Rank #2 (Buy).