Hospital operator Tenet Healthcare Corp, will buy smaller rival Vanguard Health Systems Inc. for about $1.73 billion plus the assumption of debt to expand into new geographies. The deal is further evidence of consolidation being driven by U.S. President Barack Obama's health care overhaul, Reuters reported.


"This acquisition will take Tenet into new geographic markets, expand the breadth of our service offerings, diversify our earnings sources and increase the benefits we expect to realize under health care reform," Tenet CEO Trevor Fetter said in a statement.


U.S. hospital stocks have rallied this year as investors expect the companies to benefit as more Americans are covered by health insurance and hospitals lose less money treating the uninsured.


From 2007 through 2012, 551 hospitals were part of mergers or acquisitions, according to a recent report by the American Hospital Association. There were 316 transactions, with most involving one or two hospitals. From a low of 36 transactions in 2009, the number increased to 49 in 2010, 69 in 2011 and 71 in 2012.


Tenet, based in Dallas, operates 49 hospitals and 122 free-standing outpatient centers hospitals in California, Texas, Pennsylvania and several states in the Southeast.


Nashville-based Vanguard owns and operates 28 acute care and specialty hospitals in the Midwest, the South and Massachusetts. Founded in 1997, Vanguard was taken private in 2004 by a group led by the Blackstone Group, which is still its largest shareholder with a 38 percent stake.


The acquisition opens "an important new avenue of growth among not-for-profit health systems where Vanguard has built a tremendous reputation for being a creative strategic partner," Fetter said in the statement. "At this time of unprecedented change in health care, we believe the combined company will be well-positioned to lead the transformation."


The Vanguard acquisition would be the company's biggest since it bought American Medical Holdings for $3.35 billion in 1994.