Consolidation continues across the healthcare industry with many hospitals and health systems looking to complete planned acquisitions or sales by the end of 2022 or early 2023.
Here are 15 planned hospital or health system sales that Becker’s Hospital Review has reported on in the last month:
1-2. El Segundo, Calif.-based Pipeline Health System, which filed for Chapter 11 bankruptcy in October, has agreed to sell two hospitals — Weiss Memorial Hospital in Chicago and West Suburban Medical Center in Oak Park, Ill. — to Princeton, N.J.-based Ramco Healthcare Holdings and Resilience Healthcare.
Pending approval of a motion submitted Nov. 22 to the U.S. Bankruptcy Court for the Southern District of Texas, Resilience is expected to assume operations of the two hospitals on Dec. 2.
Since acquiring ownership of the hospitals in 2019, Pipeline said it has invested $60 million to improve facilities, add technology and expand clinical programs. The hospitals employ a combined total of 1,700 employees.
3-4. The Centurion Foundation, an Atlanta-based nonprofit organization, has inked an asset purchase agreement to acquire the CharterCare Health Partners system from Los Angeles-based Prospect Medical Holdings.
Two hospitals are included in the transaction: Providence, R.I.-based Roger Williams Medical Center and Our Lady of Fatima Hospital. The change in control application process is expected to be submitted to the Rhode Island Department of Health and the state attorney general before the end of 2022.
5. West Reading, Pa.-based Tower Health plans to sell Chestnut Hill Hospital in Philadelphia to Temple University Health System for $28 million. The news comes less than a year after the health system closed two other hospitals: Brandywine Hospital in Coatesville, Pa., and Jennersville Hospital in West Grove, Pa.
Tower Health plans to rebuild around its flagship Reading Hospital and the two other hospitals it acquired for $423 million from Franklin, Tenn.-based Community Health Systems: Phoenixville Hospital and Pottstown Hospital. It also owns St. Christopher’s Hospital for Children in Philadelphia in a joint venture with Drexel University.
6. As of Nov. 14, potential buyers can submit offers for Singing River Health System, a three-hospital system with locations in Ocean Springs, Pascagoula and Gulfport, Miss.
Supervisors from Jackson County — which owns the health systems — gave the green light for proposals to sell Singing River Health System. Potential buyers have until March 10 to submit their bids.
7-9. New Orleans-based LCMC Health plans to acquire three Tulane University hospitals — New Orleans-based Tulane Medical Center; Covington, La.-based Lakeview Regional Medical Center; and Metairie, La.-based Tulane Lakeside Hospital — from Nashville, Tenn.-based HCA Healthcare.
LCMC Health will purchase the three hospitals for $150 million, expanding its portfolio to nine hospitals in the New Orleans area. The two parties hope to finalize the deal by the end of 2022 or early 2023.
10-12. Peoria, Ill.-based UnityPoint Health – Central Illinois and Des Moines, Iowa-based UnityPoint Health plans to spin off three Illinois hospitals to Urbana, Ill.-based Carle Health.
The transaction results in Carle Health taking over as the parent organization of UnityPoint Health – Central Illinois, which includes Peoria-based Methodist and Procter, and Pekin (Ill.) Hospitals and affiliated clinics, Peoria-based UnityPlace and Methodist College.
An April 1 closing date is anticipated, pending all regulatory approvals.
13. Hill Country Memorial Hospital in Fredericksburg, Texas, has entered into an agreement to become part of San Antionio-based Methodist Healthcare System.
Hill Country Memorial has 15 locations, including a hospital, an urgent care clinic, and primary and specialty care offices. Methodist Healthcare — a 50-50 co-ownership between HCA Healthcare and Methodist Healthcare Ministries of South Texas — has more than 30 facilities, including eight hospitals and nine freestanding emergency departments.
The transaction is expected to be completed in early 2023.
14. Orlando (Fla.) Health plans to acquire Sabanera Health Dorado, an acute care hospital in Puerto Rico.
The hospital will change its name to Doctors’ Center Hospital-Orlando Health Dorado, according to Orlando Health, which will team up with four additional hospitals operated by the Doctors’ Center Hospital team. The operation of all five hospitals will remain with the Doctors’ Center Hospital group.
15. Tacoma, Wash.-based MultiCare Health System and Yakima (Wash.) Valley Memorial reached an acquisition agreement, according to an Oct. 21 news release shared with Becker’s Hospital Review.
Terms of the agreement include Memorial becoming a wholly owned subsidiary of MultiCare, MultiCare investing in new programs, installing an integrated electronic health record, and providing a sustainable future for Yakima’s only hospital. The transaction is subject to routine regulatory approval and closing conditions.
Wall Street’s roil has stabilized somewhat in recent days, with the S&P 500 brushing up against its 200-day moving average and rising more than 10 percent since its October lows, as of publication time.
The index’s 50-day moving average is trending up, according to financial data firm Refinitiv. But it still must climb another 7.4 percent to form a “golden cross,” which is when a stock or index’s short-term moving average rises above one of its longer-term moving averages. The S&P 500’s 20-day and 100-day moving averages are closer to the milestone, only needing increases of 5 percent and 1.2 percent, respectively.
The Dow Jones Industrial Average has already formed a small golden cross: its 20-day moving average is 1.2 percent higher than its 200-day moving average.
Investors Optimistic about Healthcare Sector
– Investors are most optimistic about the Healthcare sector, which is trading close to its 3-year average “price to earnings-per-share” ratio of 48.1x, according to Simply Wall Street.
– Analysts are expecting an annual earnings growth of 13.4 percent, higher than the sector’s past year earnings growth of 5 percent.
– Merck and Johnson & Johnson were among last week’s top gainers driving the market.
Inflation Appears to be Slowing
– The recent lower-than-expected inflation figures could indicate it is slowing.
– The Fed may continue raising rates, considering the strength in recent labor market and retail sales data.
Cash reserves, an important indicator of financial stability, are dropping for hospitals and health systems across the U.S.
Both large and small health systems are affected by rising labor and supply costs while reimbursement remains low. St. Louis-based Ascension reported days cash on hand dropped from 336 at the end of the 2021 fiscal year to 259 as of June 30, 2022, the end of the fiscal year. The system also reported accounts receivable increased three days from 47.3 in 2021 to 50.3 in 2022 because commercial payers were slow, especially in large dollar claims.
Trinity Health, based in Livonia, Mich., also reported days cash on hand dropped to 211 in fiscal year 2022, ending June 30, compared to 254 days at the end of 2021. Trinity attributed the 43-day decrease in cash on hand to “investment losses and the recoupment of the majority of the Medicare cash advances.”
Chicago-based CommonSpirit Health reported days cash on hand decreased by 69 days in the last year. The 140-hospital health system reported 245 days cash on hand at the 2021 fiscal year’s end June 30, and 176 days for 2022.
Lehigh Valley Health Network in Allentown, Pa., said unfavorable trends in the capital market led to investment losses and a drop in days cash on hand from 216 to 150 days in the 2022 fiscal year ending June 30. The health system also had a scheduled repayment of $191.1 million in advance Medicare dollars as well as $25 million in deferred payroll tax payments.
Philadelphia-based Thomas Jefferson University reported cash on hand for clinical operations dropped by 10.9 days in just the last quarter due to nonoperating investment losses and repaying government advances, which equaled about five days cash on hand. The health system reported 158.5 days cash on hand as of Sept. 30.
While the large health systems’ days cash on hand are dropping, they still have deep reserves. Smaller hospitals and health systems are in a more dire situation. Doylestown (Pa.) Hospital reported as of Sept. 30 the system had 81 days cash on hand, and Moody’s downgraded the hospital in June after the days cash on hand dropped below 100.
Kaweah Health in Visalia, Calif., saw reserves plummet since the pandemic began from 130 to 84 days cash on hand. Gary Herbst, CEO of Kaweah Health, blamed lost elective procedures, high labor costs, inflation and more for the system’s financial issues.
“The COVID-19 pandemic, and its aftermath, have brought District hospitals to the brink of financial collapse,” Mr. Herbst wrote in an open letter to Gov. Gavin Newsom published in the Visalia Times Delta. He asked Mr. Newsom to provide additional funding for public district hospitals. “Without your help, it will soon be virtually impossible for Medi-Cal patients to receive anything but emergency medical care in the State of California.”
Private equity groups have invested about $1 trillion into nearly 8,000 healthcare transactions in the past decade, and some experts are pushing for more scrutiny of its increasing influence on the industry amid concern it may be causing higher medical bills and diminished quality of care, a Nov. 14 Kaiser Health News report said.
Because such investment groups typically invest less than $101 million, such transactions do not attract automatic antitrust reviews at the federal level, the report continued. That represents more than 90 percent of private equity investments in the industry.
Nevertheless, companies owned or managed by private equity groups have agreed to pay fines of more than $500 million since 2014 in over 30 lawsuits under the False Claims Act, which deals with false billing submissions, KHN’s investigation found.
The problem may be most acute in certain specialist fields and in certain metropolitan areas. While private equity, for example, plays a role in just 14 percent of gastroenterology practices nationwide, it controls about 75 percent of that market in at least five metropolitan areas across five states, including Texas and North Carolina, according to research from UC Berkeley’s Nicholas C. Petris Center.
And private equity pockets may be getting deeper. In 2021 alone, over $206 billion was invested by such groups in healthcare, and there is plenty of “dry powder” around for more, KHN reported. The Healthcare Private Equity Association, for example, which boasts about 100 investment companies as members, says the firms have $3 trillion in assets awaiting allocation.
Private equity, like everything else, may have some poor performers but it doesn’t help to generalize as groups “vary tremendously” in how they operate their healthcare investments, Robert Homchick, a Seattle attorney, told KHN.
“Private equity has some bad actors, but so does the rest of the [healthcare] industry,” he said. “I think it’s wrong to paint them all with the same brush.”
Concerns remain, however, that, at least in some cases, private equity involvement is simply a vehicle for maximizing returns, often at the expense of patients. In addition to the $500 million fines, there is also evidence of some private equity groups pushing through additional testing and mandated patient numbers to boost returns, often in medically questionable scenarios, the report said, citing the example of National Spine and Pain Centers previously owned by private equity group Sentinel Partners.
In that case, National Spine paid $3.3 million in a whistleblower case related to allegations of unnecessary treatment and testing, KHN said.
The scope of such private equity dominance in some markets worries many industry observers, and much more needs to be done to help reel in such potential abuses, they say.
“We’re still at the stage of understanding the scope of the problem,” said Laura Alexander, former vice president of policy at the nonprofit American Antitrust Institute, which collaborated on the Petris Center research. “One thing is clear: Much more transparency and scrutiny of these deals is needed.”
The Illinois Health Facilities and Services Review Board unanimously approved a plan to change ownership for 10 Advocate Aurora facilities in the state covered by the system’s plan to merge with Charlotte, N.C.-based Atrium Health, the Chicago Tribune reported Nov. 14.
Atrium and Advocate Aurora, dually headquartered in Milwaukee and Downers Grove, Ill., announced plans to merge into a 67-hospital system with upward of $27 billion in revenue in May. The merger would create one of the largest health systems in the country, with more than 1,000 sites of care across Illinois, Wisconsin, North Carolina, South Carolina, Georgia and Alabama, according to the report.
The approval comes after the board voted in September to delay the approval. Board members’ concerns stemmed from the availability of information and their understanding about the deal.
Since that meeting, Advocate Aurora has answered many of the board’s questions, such as the reasons for the combination and the proposed governance structure, according to the report. Some board members said they still wanted more information, but the board is required by law to approve certain types of applications as long as they are complete.
The board’s approval was needed for the merger because the affiliation is considered a change of 50 percent or more of the voting members of a nonprofit corporation’s board of directors that controls a healthcare facility’s operation, license, certification or physical plant and assets. The board of directors of Advocate Health — the combined system’s new name — will be made up of an equal number of members from Advocate Aurora and Atrium Health.
Advocate Aurora shared the following statement with Becker’s on the board’s approval:
“Securing the Illinois Health Facilities and Services Review Board’s approval brings us one step closer to coming together with Atrium Health, which will allow us to improve the lives of our patients, the health of our communities and the opportunities for our team members. We look forward to closing, which we anticipate before the end of the year.”
Atrium shared the following statement with Becker’s:
“We are pleased to see that the process continues to move forward and remain optimistic our combination with Advocate Aurora Health will be finalized before the end of the year.”
In its Q3 earnings call, Oscar Health CEO Mario Schlosser revealed that the “insurtech” has pulled out of the MA market in Texas and New York, leaving it with only one Florida-based plan. Oscar entered the MA business with high hopes in 2020, but counted fewer than 5K MA members in Q3 2022.
Although its Affordable Care Act exchange enrollment has nearly doubled since last year, now covering more than 1M lives, Oscar is still struggling with high medical loss ratios, which have kept it from turning a profit. The company’s stock price is at an all-time low, having declined over 90 percent from its peak, shortly after its 2021 IPO.
The Gist: Like Bright HealthCare before them, Oscar pulling out of MA is another sign that the chance of meaningful disruption from “insurtechs” has nearly vanished. While still privately held, Oscar achieved fame in the early 2010s through catchy marketing that targeted a young, tech-savvy client base, and its move into MA before the pandemic signaled broader ambitions.
Oscar’s travails illustrate just how hard it is to start an insurance company from scratch, even with an intriguing and comprehensive technology platform. The company proved unable to overcome its lack of market power in negotiations with providers, and faced difficulty managing a small, unstable risk pool.
Now that more traditional insurers are improving their mobile tech interfaces and telehealth offerings, the differentiated value Oscar offers to its members has clearly diminished.
According to reporting from Bloomberg, primary care company VillageMD, which is majority-owned by Walgreens, is engaged in talks to merge with New Jersey-based Summit Health, a large medical group network and urgent care chain backed by private equity firm Warburg Pincus.
In 2019, Summit merged with CityMD, a New York City-based urgent care chain, and operates over 370 clinic locations based in and around New York City, as well as in central Oregon. The combined entity would be valued between $5B and $10B.
The Gist: Should this deal go through, it would epitomize recent trends in healthcare M&A: a well-established independent medical group using private equity funding to rapidly expand its operations before selling off to an industry giant.
If that industry giant ends up being VillageMD, Walgreens would finally have a physician practice with deep experience in managing risk, on which they can anchor their larger ambitions in care provision. And if the deal with Walgreens falls through, Summit, with its combination of mostly suburban value-based care practices and largely urban urgent care chains, is sure to attract plenty of other suitors, including any of the major national insurers.
In a recent STAT News article, reporters Tara Bannow and Bob Herman took an in-depth look at private-equity firm Welsh, Carson, Anderson & Stowe, examining the performance of four of its healthcare portfolio companies. They show how the firm’s A-list partners, clients, and board members have promoted controversial business practices—often at the expense of publicly funded healthcare programs—that conflict with its well-curated public image.
The Gist: This article emphasizes how the complex and opaque regulatory structure of American healthcare allows motivated parties like PE firms to find technically legal, though ethically suspect, business models, which can easily tip over into outright illegality.
It highlights the “revolving door” flow of executives between industry and government, which allows investment firms to play a long game by actively shaping the regulatory landscape and lobbying to create business opportunities where none previously existed. Justified backlash at “gotcha” business models and profit-seeking at the expense of vulnerable patients may swamp any positive contribution that PE investment and rollups may make to the business of healthcare.
There are an estimated 19,000 full-time job vacancies across Massachusetts acute care hospitals, according to a survey published Oct. 31 by the Massachusetts Health & Hospital Association.
Hospitals are working to address backlogs and transfer patients to post-acute care settings while skyrocketing labor costs — including a projected $1 billion in travel labor costs this year — are compounding healthcare facilities’ financial woes, according to the report. These challenges are hampering hospital operations as well as leading to care delays and reduced access to care.
Fewer workers mean that fewer beds are available for patients, while the demand for care increases due to deferred care throughout the COVID-19 pandemic, the behavioral health crisis and reduced access to community-based services continue to challenge hospitals throughout the state. At any given time, more than 1,500 patients are in acute hospital beds awaiting placement to a specialized behavioral health bed or post-acute care, according to the MHA.
“Our healthcare system has never been more fragile, and its leaders have never been more concerned about what’s to come in months ahead,” Steve Walsh, president and CEO of the MHA, said in an Oct. 31 news release shared with Becker’s Hospital Review. “They are exhausting every option within their control to confront these challenges, but this is an unsustainable reality and providers are in dire need of support.”
In response to the survey, 37 hospitals — representing 70 percent of the state’s total hospital employment — reported 6,650 vacancies among 47 positions critical to hospital operations and clinical care. The positions range from direct care nurses to lab personnel and clinical support staff. Eighteen of the 47 positions have a vacancy rate greater than 20 percent.
At a 56 percent vacancy rate, licensed practical nurses is the most in-demand position, while home health aides (34 percent), mental health workers (32 percent), infection control nurses (26 percent) and CRNAs (24 percent) are also highly sought after.
Survey respondents identified 6,650 vacancies. The 47 positions included in the survey, which was conducted this summer, account for less than half of all hospital roles. The MHA said it extrapolated that across all positions and hospitals to arrive at an estimated 19,000 vacancies across the state.
Staffing shortages are driving labor costs to an unsustainable level for many hospitals already grappling with margins close to zero or in the red. Hospitals have relied on high-cost temporary staffing to fill critical positions during the pandemic, resulting in average hourly wage rates for travel nurses increasing 90 percent since 2019, according to the report. Massachusetts hospitals reported spending $445 million on temporary registered nurse staffing halfway through the fiscal year, with temporary RN staffing costs increasing 234 percent from fiscal year 2019 to March 2022.
If urgent steps are not taken to address healthcare’s staffing shortage, hospitals will continue to face capacity challenges and overpay for labor, which will lead to fiscal instability, according to Mr. Walsh.
The MHA urged providers, payers, public officials and government agencies to address the workforce crisis by investing in training and education, expanding the workforce pipeline, providing financial support to hospitals and advancing new models of care such as telehealth and at-home care.