Brentwood, Tenn.-based Surgery Partners has been pursuing a portfolio optimization effort for several quarters, with the goal of shedding larger surgical hospital assets that don’t fit its core short-stay, outpatient-focused model, executives said in a May 5 first-quarter earnings call transcribed by Motley Fool.
“We are in advanced discussions on one key opportunity in a larger surgical hospital market and are working through customary diligence and transaction considerations,” CEO Eric Evans said. “Our board is actively engaged in this process, and we continue to target an announcement in mid-2026.”
While executives stopped short of specifying the exact structure of the transaction, the direction appears to be an exit. The strategic rationale is fourfold, Mr. Evans said: de-lever the balance sheet faster, improve free cash flow conversion, accelerate growth by shedding capital-intensive assets and simplify the business around its core short-stay focus.
“Our efforts remain focused on a small number of larger surgical hospital markets that have broader services than our core short-stay surgical focus,” Mr. Evans said.
The company has also tied its planned Investor Day to having a transaction completed, making the mid-2026 target window a closely watched milestone for investors. However, Mr. Evans was careful to temper expectations, noting that “nothing is done until it’s signed.”
The push to exit surgical hospital assets is also being accelerated by a mounting regulatory headwind. Two states recently introduced provider taxes on facilities carrying the title “hospital,” a designation that applies to some of Surgery Partners’ surgical hospitals, even though those facilities treat virtually no Medicaid patients. The result is that the company is paying into a Medicaid funding mechanism while receiving none of the offsetting reimbursement benefits typically associated with it.
That dynamic is expected to create roughly $8 million in full-year EBITDA pressure, with the impact front-loaded into the first half of the year. Management said the drag is fully reflected in its 2026 guidance and that the company is actively advocating against the taxes, though no resolution is imminent.
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