Behind the Push to Invest in Hospitals

Philip Betbeze, October 7, 2011

Many of my colleagues and I have been steeped lately in conversations with hospital leaders that generally focus on expectations of declining reimbursements, standardization, efficiency projects and the feeling of general malaise about the difficulty of running a hospital or health system profitably. Why then, are so many players pushing their cash into inpatient care through hospital and health system purchases?

Many forces are pushing hospitals to consolidate—and predictions overall are that healthcare will become more efficient and more patient-friendly because, if nothing else, their very survival depends on it.

We hear a lot of negativity from senior leaders at many hospitals and health systems who bemoan the cuts in staffing and even services that they feel might be necessary to compete in a reformed healthcare system, where spending is dictated more by value than volume.

But if malaise is in hospitals' future, you wouldn't know it from the interest emanating from the Wall Street crowd. Why, for instance, are so many private equity companies jumping into healthcare? They don't make huge investments like Cerberus Capital Management's purchase of Steward Healthcare (nee Caritas Christi) in the Northeast or Vanguard's acquisition of Detroit Medical Center to lose money, after all. (Though publicly traded, Vanguard is significantly owned by private equity stalwart, The Blackstone Group.)

This conflict between mood and money has interested me for some time. Finally, I have a bit of an explanation, though I'm not sure I completely buy it. According to IBISWorld, a business development market research company, several sectors within healthcare promise huge growth potential over the next five years. The catalyst? You guessed it: healthcare reform.

Philip Betbeze

Philip Betbeze is the senior leadership editor at HealthLeaders Media.

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