Health Net Inc.
) announced that its subsidiaries have terminated their 3-year
contract with 6 hospitals of
Tenet Healthcare Corp.
) in Southern California. The contract termination resulted 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
present market condition in California.
The company wanted to bring the reimbursement rate at par with
the medical consumer price index, which currently exceeds the 3%
mark. Additionally, Health Net wanted the reimbursement rate for
those programs, which are financed by the state or 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 with all 6 Tenet Healthcare hospitals. The
agreements have been terminated with effect from December 21,
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.
Health Net believes that the current reimbursement rates were
not reasonable and increased the health care costs of its
customers. The increasing cost went against the company's
objective of providing reasonably priced health care to its
clientele. Thus, it prematurely terminated the contract, which
was already on the verge on expiration.
Both Health Net and Tenet Healthcare currently carry a Zacks
#2 Rank (Buy). We also maintain a long-term 'Neutral'
recommendation on the stocks.
HEALTH NET INC (HNT): Free Stock Analysis
TENET HEALTH (THC): Free Stock Analysis
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