USC buys 2 disputed hospitals on campus

USC has agreed to pay Tenet Healthcare Corp. $275 million to acquire USC University Hospital and USC Kenneth Norris Jr. Cancer Hospital, ending a three-year dispute over control.

USC said Tuesday that it would retain the 1,600 employees and recruit needed staff and physicians.

The two hospitals, on USC’s health sciences campus in Los Angeles, have 471 inpatient beds.

The deal puts an end to a bitter dispute between Tenet, one of the nation’s largest hospital chains, and USC over control of the hospitals.

The university sued Tenet in August 2006 seeking to end their relationship.

The suit alleged that the troubled hospital operator had not invested nearly $100 million to improve the facilities as agreed.

Tenet denied the allegations and countersued, seeking damages.

USC Provost C.L. Max Nikias said having ownership of the hospitals would allow the university to more fully integrate them with its Keck School of Medicine.

He said it would also enable the university to invest in improvements that would help position the hospitals as cutting-edge research facilities, and it would help physician recruitment.

With its Keck School of Medicine providing much of the faculty for the teaching hospitals, Nikias said it made sense for the university to control the facilities.

“Everybody sees that in the next 50 years, the fastest-growing sectors of the global economy are going to be driven by advances in biology and medicine,” he said. “We want to ensure that all our health-related sciences and research and patient care are world class if we want to be a key player in this area.”

Nikias said the hospitals had suffered from physician defections and looked forward to being able to recruit top-notch doctors and medical professors now that the university was in control. He said the university looked forward to creating a “new physician-driven model for the delivery of excellent clinical care.”

In a statement, Tenet Chief Executive Trevor Fetter suggested the company was discharging the hospitals in good health, describing the facilities as first-rate and “well positioned for the future.”

National Medical Enterprises Inc., which later became Tenet, opened USC University Hospital in 1991. The acute-care hospital has 411 beds, 11 new operating rooms and 7,700 inpatient visits and 56,000 outpatient visits a year. Tenet acquired the 60-bed Norris Cancer Hospital in 2003.

Tenet was once the biggest hospital chain in Southern California. The USC sale follows a strategic retrenchment that began with Tenet’s announcement in early 2004 that it would sell 19 California hospitals, most of them in Southern California.

Tenet continues to operate 11 hospitals in California, including Los Alamitos Medical Center and Desert Regional Medical Center in Palm Springs.

The university appointed Mitchell R. Creem chief executive of the two hospitals following a national search.

The university sold $215 million in bonds in January and expects to issue additional debt to finance the acquisition.

Tenet said it would record a $40-million impairment charge in discontinued operations in the fourth quarter of 2008 in connection with the deal.

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lisa.girion@latimes.com