Hospitals: For Sale by Owner
Jason Pless, Marketing and Vitals Editor
March 23, 2011
Faced with the high costs of remaining competitive, many hospitals across the nation - especially
those community-based facilities without deep pockets - are letting prospective suitors know they
are available for purchase. That price, however, usually includes a promise by the purchaser of
long-term investment to ensure a hospital remains viable in its marketplace.
Improvement projects are often a much-needed side-effect of these transactions. They commonly
include converting patient rooms to a private setting, infrastructure upgrades, allocating more
floor space to combat ER overcrowding, addressing the growing demand for outpatient services,
purchasing modern medical equipment, and implementing electronic medical records (EMR) and other IT
systems to meet the federal government's 'Meaningful Use' requirements.
Below are a few of the many recent purchase deals with strings attached to pursue expensive
upgrade projects:
* Vanguard Health Systems (Nashville, TN) acquired eight-hospital Detroit (MI) Medical Center
(DMC) for $1.3 billion on 1/1/11. As part of the deal, Vanguard agreed to spend $850 million
over five years on about 20 construction projects at the DMC facilities, ranging from a new patient
tower at Children's Hospital of Michigan (Detroit, MI) to an expansion of the emergency department
at Sinai-Grace Hospital (Detroit, MI). The acquisition entailed converting DMC from a
non-profit to for-profit status.
* Covenant Health (Knoxville, TN) and Morristown (TN)-Hamblen Hospital merged together based
on a seven-year capital commitment with a total investment of almost $100 million by the healthcare
system to improve and expand the hospital and its medical and information technology, medical
services, physician specialties, key quality initiatives, and the assumption of its debt.
* Swedish Health Services (Seattle, WA) signed a long-term lease and assumed management of
217-bed Stevens Healthcare (Edmonds, WA) late last year. Swedish agreed to make $90 million
in general investments at the Edmonds hospital over the next decade, including an EMR system and
$60 million in building improvements and expansion. The facility has since been renamed Swedish
Edmonds Hospital.
Healthcare systems are entering into these deals because it is often less expensive to
purchase established hospitals than to pursue new construction. Each state has a regulatory
committee that oversees its healthcare industry, and establishing a new hospital can be a very long
and drawn out legal process. In short, the healthcare provider has to demonstrate, as
outlined in its certificate of need (CON) application to state regulators, the necessity of the
project - not already provided by other surrounding facilities - before ever breaking ground.
Healthcare systems can increase their market territories by purchasing established hospitals
or, as is often the case, acquire a competing hospital and streamline the two stand-alone
facilities into a two-campus hospital. This latter purchase model has been a successful way
to maximize efficiencies by sharing executive management teams, medical specialists and staff; and
group purchasing contracts; consolidating redundancies; and IT systems and equipment.
Mergers and acquisitions are becoming so commonplace in today's healthcare industry because
providers are grappling with issues of 'How do we stay competitive?' in light of rising operational
costs. And many hospitals are coming to the conclusion that the most feasible business
solution is putting out a metaphorical 'For Sale By Owner' sign on the campus lawn.
Billian's HealthDATA offers the
Vitals bi-weekly e-newsletter offering updates about hospital changes that can impact an
organization's sales and marketing approach. Updates typically include personnel changes and
top-level healthcare executive hires, hospital expansion and renovation plans, state 'Certificate
of Need' (CON) filings, mergers and acquisitions, and hospital openings and closings. Click
here to learn more.
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