Spe­cial re­port: For-profit cr­rep hospi­tal own­er­ship bal­ance

In­vestor-owned hospi­tal chains add mar­ket share, along with a grow­ing num­ber of ven­tures with not-for-profit coun­ter­parts

Modern Healthcare - - FRONT PAGE -

Most ad­min­is­tra­tors at in­vestor-owned hos­pi­tals would say they can’t imag­ine a time when their fa­cil­i­ties will out­num­ber their not-for-profit coun­ter­parts, but the gap has been steadily shrink­ing.

“Not-for-prof­its are kind of the fab­ric of health­care in the United States, and they, like in­vestor-owned hos­pi­tals, are part of the fu­ture of health­care,” says Peter Law­son, ex­ec­u­tive vice pres­i­dent of de­vel­op­ment for Health Man­age­ment As­so­ciates, a 56-hospi­tal for-profit chain based in Naples, Fla.

The num­ber of in­vestor-owned hos­pi­tals has con­tin­ued to grow in re­cent years, just the op­po­site of the trend for not-for-profit and gov­ern­ment-run hos­pi­tals. And lead­er­ship at the in­vestor-owned chains say there’s a rea­son for that. They con­tend that the for­profit mod­els, which sup­pos­edly bet­ter stress cost con­tain­ment and a more shrewd ap­proach to ex­pan­sion, can pro­duce bet­ter re­sults fi­nan­cially and even clin­i­cally.

For-profit hos­pi­tals also are typ­i­cally bet­ter equipped to cope with dwin­dling Medi­care and Med­i­caid re­im­burse­ment, says Me­gan Neuburger, se­nior di­rec­tor for New York-based Fitch Rat­ings. And the chains also can bet­ter ab­sorb debt, she says, which is im­por­tant as health­care moves to new mod­els of re­im­burse­ment such as bun­dled pay­ments and ac­count­able care that might re­quire providers to op­er­ate with more lever­age.

Still, it’s im­por­tant to keep in mind that not-for-profit hos­pi­tals con­tinue to dom­i­nate the health­care land­scape, ac­count­ing for 80% of the over­all mar­ket. And there will al­ways be a siz­able con­tin­gent of Amer­i­cans that re­sists the en­tire no­tion of for-profit medicine, with crit­ics say­ing in­vestor-owned chains can be more be­holden to their share­hold­ers than to their com­mu­ni­ties.

Growth num­bers in the for-profit sec­tor cer­tainly don’t jump off the page. They’ve risen at some­what of a tor­toise’s pace, ac­cord­ing to over­all hospi­tal sta­tis­tics, with gains inch­ing along at about 1% an­nu­ally dur­ing the past five years. For-prof­its now ac­count for more than 20% of the na­tion’s hos­pi­tals, ac­cord­ing to the lat­est num­bers from the Amer­i­can Hospi­tal As­so­ci­a­tion. Non­govern­men­tal, not-for-profit hos­pi­tals have held steady at about 58%, while the share of govern­men­towned fa­cil­i­ties has dipped slightly to about 21% (See chart, p. 29).

“The growth is a re­flec­tion of de­mand at in­vestor-owned health sys­tems to ei­ther build new hos­pi­tals from scratch or to ac­quire part­ners with not- for- prof­its,” Law­son says.

Law­son and other ad­min­is­tra­tors also fre­quently cite an­other key ad­van­tage in the for­profit sec­tor—greater ac­cess to cap­i­tal through the eq­ui­ties mar­ket and other re­sources that can help achieve im­proved clin­i­cal out­comes. As Law­son says, the bond mar­ket in re­cent years has made it more dif­fi­cult for the not-for-prof­its to bor­row money, giv­ing in­vestor-owned hos­pi­tals an edge.

That ac­cess has helped sus­tain growth and fi­nan­cial vi­a­bil­ity de­spite chal­lenges re­sult­ing from a strug­gling econ­omy, which prom­ises to be even more im­por­tant given up­com­ing changes from the Pa­tient Pro­tec­tion and

Af­ford­able Care Act of 2010.

“The big­gest im­pact of the ACA is go­ing to come in 2014 when we see the in­di­vid­ual in­sur­ance man­date along with Med­i­caid ex­pan­sion take ef­fect,” Neuburger says. Hos­pi­tals, physi­cians and other health­care providers con­tinue to ex­press con­cern about low Med­i­caid re­im­burse­ment rates given the large in­flux of pa­tients ex­pected un­der the re­form law.

Of course the fu­ture look of the Af­ford­able Care Act is an un­known, given the le­gal chal­lenges now in the hands of the U.S. Supreme Court jus­tices and pend­ing the out­come of the Novem­ber elec­tions. Changes could spell up­heaval no mat­ter what a health­care sys­tem’s own­er­ship sta­tus might be.

Dan Moen, pres­i­dent and CEO of LHP Hospi­tal Group, Plano, Texas, calls the Af­ford­able Care Act a key driver of ex­pan­sion, as sys­tems are now see­ing how some key pro­vi­sions of the law have al­ready be­gun to un­fold.

“Many hos­pi­tals didn’t do any­thing in re­gard to chang­ing their own­er­ship un­til they fig­ured out what health­care re­form was go­ing to look like,” Moen says.

Seek­ing part­ners

Point Health­care.

An af­fil­i­a­tion with an aca­demic hospi­tal is a boost to the for­profit com­pany from a brand­ing and mar­ket­ing stand­point while also bring­ing ben­e­fits for the teach­ing hospi­tal, she says.

Health Man­age­ment As­so­ciates in 2010 closed a sim­i­lar trans­ac­tion, ac­quir­ing 60% own­er­ship of three ru­ral hos­pi­tals from Shands Health­care, Gainesville, Fla. HMA’S growth model in­cludes a full merger, where a hospi­tal would to­tally fall un­der the sys­tem’s con­trol, or the op­tion of al­low­ing the hospi­tal’s lo­cal board to re­tain con­trol, Law­son says. Un­der ei­ther op­tion, the hospi­tal be­comes a for­profit en­tity.

“In the past you’d just sell or have to merge,” Law­son says. “And that may not reg­is­ter well with a lo­cal not-for-profit with a sys­tem board that wants to keep the cul­ture and lo­cal au­ton­omy in place.”

LHP also has a sim­i­lar pol­icy, in which con­trol of the hospi­tal can re­main lo­cal and, like the part­ner­ship with Hack­en­sack, the hospi­tal can stay not-for-profit.

“Our model is re­ally pretty unique in that we don’t buy hos­pi­tals,” Moen says. “We in­vest in hos­pi­tals, we share the own­er­ship; we share gov­er­nance with them. It’s a very dif­fer­ent model … hav­ing a lo­cal part­ner helps make good de­ci­sions.”

Capella Health­care, a 13-hospi­tal for­profit chain based in Franklin, Tenn., also has tested dif­fer­ent part­ner­ship mod­els, most re­cently in De­cem­ber when it en­tered into an agree­ment with a Ten­nessee di­vi­sion of As­cen­sion Health that gave the na­tion’s largest Catholic health­care provider a stake in five of Capella’s hos­pi­tals.

Dan Slip­kovich, Capella’s co-founder and CEO, says that even though a deal might sound at­trac­tive, it doesn’t al­ways mean it should be con­sum­mated. The ad­di­tional re­sources avail­able to for-prof­its al­low them to be choosy in search­ing for an ideal part­ner­ship. This way, of­fi­cials can vet a deal more thor­oughly to help de­ter­mine if the cul­tures of the two or­ga­ni­za­tions would mesh well.

“Health­care is not Mcdon­ald’s, and you just can’t plop down here and make ev­ery­thing the same across the coun­try, for a va­ri­ety of rea­sons,” Slip­kovich says. “The gen­eral pop­u­la­tion is dif­fer­ent.”

Such due dili­gence is likely to bring

He also says in­vestor-owned hos­pi­tals are more at­trac­tive ac­qui­si­tion part­ners to free­stand­ing, not-for-profit hos­pi­tals. As ac­count­able care or­ga­ni­za­tions be­come more preva­lent, he says in­vestor-owned sys­tems give in­de­pen­dent fa­cil­i­ties a chance to join a fi­nan­cially healthy, ge­o­graph­i­cally di­verse net­work, which pro­vides a good fit in the ACO model.

LHP is a pri­vately held, for-profit com­pany spe­cial­iz­ing in joint ven­tures with not­for-profit fa­cil­i­ties. One such deal in­volved not-for-profit 696-bed Hack­en­sack (N.J.) Univer­sity Med­i­cal Cen­ter, with both par­ties form­ing a joint ven­ture, Mont­clair (N.J.) Health Sys­tem.

“It’s an op­por­tu­nity to stay true to their mis­sion,” says Robert Gar­rett, pres­i­dent and CEO at Hack­en­sack. “It brings the best of both worlds, it keeps not-for-profit tra­di­tions and mis­sions and cul­ture, but it also brings out the best for-profit ac­cess to cap­i­tal and the abil­ity to fund the daily op­er­a­tions of com­mu­nity hos­pi­tals, and that’s one of the things we had in Hack­en­sack. That model was at­trac­tive.”

Hack­en­sack re­tains its not-for-profit sta- tus work­ing with LHP. Just last week, Mont­clair Health filed a certificate-of-need re­quest with the state to ac­quire 245-bed Moun­tain­side Hospi­tal, also in Mont­clair.

Such part­ner­ships also will drive the for­profit mar­ket share, Moen says, adding that LHP, which started this year with two hos­pi­tals, plans to con­tinue ex­pan­sion, with the ideal pace adding three to five hos­pi­tals an­nu­ally.

Teach­ing hos­pi­tals such as Hack­en­sack can be par­tic­u­larly ap­peal­ing for in­vestorowned sys­tems, Neuburger says. She cited last year’s deal that brought to­gether Duke Univer­sity Health Sys­tem, Durham, N.C., and for-profit, 51-hospi­tal Lifepoint Hos­pi­tals of Brent­wood, Tenn., to form Duke Life- In an ex­clu­sive in­ter­view, Dan Moen, CEO of for-profit LHP Hospi­tal Group, Plano, Texas, talks with Mod­ern Health­care re­porter Ashok Sel­vam. He dis­cusses what he con­sid­ers the strengths of the for-profit sec­tor and ex­plains the part­ner­ships his com­pany pur­sues with not-for-profit hos­pi­tals. To lis­ten to the in­ter­view, visit mod­ern­health­care.com/pod­casts.

re­wards, op­er­a­tionally and fi­nan­cially.

“For re­ally good hos­pi­tals, it’s how do we align more broadly?” Slip­kovich says. “It’s go­ing to evolve over time; fee-for-ser­vice medicine is go­ing to shift to bundling … what­ever you’re go­ing to call it, I think it’s go­ing to evolve. I don’t know if you’re go­ing look straight up at the cur­rent ACO model.”

“Evo­lu­tion” is a term that is re­peated fre­quently in the dis­cus­sion of health­care de­liv­ery. Neuburger uses the word to de­scribe how the chang­ing re­im­burse­ment sys­tems will af­fect growth. And it’s also the way Dr. Michael Rus­sell II, pres­i­dent of the Physi­cian Hos­pi­tals of Amer­ica, de­scribes changes he has wit­nessed in the mar­ket. The Washington-based trade group rep­re­sents for­profit, doc­tor-owned in­sti­tu­tions.

“I don’t think it’s sur­pris­ing,” Rus­sell says of the growth in in­vestor-owned hos­pi­tals. “I be­lieve that many of the very large, older in­sti­tu­tions are in a sit­u­a­tion where they have a model that is, quite frankly, out­dated, and what you find is the smaller, in­vestor-owned fa­cil­i­ties are able to meet the fu­ture needs in a much more ef­fi­cient and qual­ity-driven way.”

Rus­sell says he be­lieves more physi­cianowned hos­pi­tals are needed to give pa­tients choice and to give doc­tors more con­trol over de­liv­ery of health­care. He con­tends an in­crease in such fa­cil­i­ties would lower the costs of health­care by of­fer­ing more com­pe­ti­tion in lo­cal mar­kets.

Rus­sell also says more pres­sure needs to be put on of­fi­cials in Washington to lift reg­u­la­tions, specif­i­cally Sec­tion 6001 of the Af­ford­able Care Act, which pro­hibits new physi­cian-owned hos­pi­tals and lim­its the size and physi­cian-own­er­ship per­cent­age of ex­ist­ing fa­cil­i­ties.

“When you don’t have com­pe­ti­tion in health­care, qual­ity goes down, ex­penses go up; plain and sim­ple,” Rus­sell says.

But not all par­ties place a pre­mium on that com­pe­ti­tion. Of­fi­cials of the Fed­er­a­tion of Amer­i­can Hos­pi­tals, an­other trade group that rep­re­sents for-profit hos­pi­tals, have said that on many is­sues they are in agree­ment with their not-for-profit coun­ter­parts and are call­ing for in­creased co­op­er­a­tion and col­lab­o­ra­tion. Ev­i­dence of that ap­pears in the flurry of creative part­ner­ships bring­ing for­profit and not-for-profit hos­pi­tals to­gether.

HMA’S Law­son has worked in the for­profit and not-for-profit sec­tors dur­ing his 30-year ca­reer and can at­test to the changes: “It used to be a dis­tinc­tion, but not so much any­more,” he says.

The two sec­tors have al­ways shared at least one com­mon goal, Law­son says: de­liv­er­ing the best pos­si­ble care to their pa­tients.

“As long as you have a good cul­tural fit in a mar­ket where you can col­lab­o­rate both clin­i­cally and op­er­a­tionally, I see some great op­por­tu­ni­ties to im­prove clin­i­cal out­comes and mar­ket share for both,” Law­son says.

Health Man­age­ment As­so­ciates, a for-profit chain based in Naples, Fla., last year ac­quired seven hos­pi­tals from Mercy Health Part­ners-ten­nessee. One of those fa­cil­i­ties, left, is now named Turkey Creek Med­i­cal Cen­ter, in Knoxville, Tenn.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.