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Tenet Healthcare Extends Contract with Humana to Drive Growth

Zacks Equity Research

After Tenet Healthcare Corp.’s (THC) multi-year national contract with health industry giant Cigna Corp. (CI) two months ago, a similar move by the former is grabbing investors’ attention. This time the company has extended its contract with Kentucky-based health and well-being company, Humana Inc. (HUM).

The latest multi-year contract extension is also a multi-faceted deal. Firstly, it ensures Humana members a continued in-network access to Tenet Healthcare’s suite of 79 hospitals, 193 outpatient centers and over 1800 employed physicians. Secondly, it includes an Accountable Care Organization (:ACO) arrangement for the Atlanta-based Medicare Advantage Members of Humana. Thirdly, this contract marks the first time that Tenet Healthcare will be serving Humana members in Atlanta, Birmingham, Houston, Memphis and San Antonio. Meanwhile, Tenet Healthcare will continue to cater to Humana’s members in the cities of Chicago, Detroit and Phoenix.

The aforementioned contract extension will help Tenet Healthcare to achieve its target of maximizing its healthcare coverage across the major states of the U.S. Moreover, it will enable the company to expand its clientele in high-demand regions from the participation in Humana’s new Health Exchange plans. .

The decision to collaborate with Humana is also backed by Tenet Healthcare’s intention to capitalize on the former’s extensive resources in high-quality patient care. Along with the regional expansion, this alliance will also enhance the operating leverage of Tenet Healthcare going forward.

Humana’s immense potential is reflected by its 25-year accountable care history with 900 accountable care relationships across 40 states and Puerto Rico, and over one million members and 33,000 primary care physicians. Moreover, the company is known for its strategy of integrating care delivery, member experience, and clinical and consumer insights to enhance wellness of the U.S. residents.

Notably, earlier this week, Tenet Healthcare had declared its plans to acquire some hospitals in various states. This, along with the latest contract extension, shows that the company is gearing up to realize its expansion goals. We believe that such favorable announcements in quick succession have the potential to boost investor sentiment and thus, increase the company goodwill. Tenet Healthcare’s long-term growth rate of 12.20% further raises optimism.

At present, Tenet Healthcare carries a Zacks Rank #2 (Buy). Among other stocks that appear attractive at current levels, Acadia Healthcare Company, Inc. (ACHC), with a Zacks Rank #1 (Strong Buy) is worth mentioning.  

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