The evidence is tough to ignore. Compared to 20 years ago, hospitals face enormous business headwinds, as we've chronicled in HealthLeaders magazine over the past eight years and in this space more recently. The development and popularity of alternative sites of care, periodic reimbursement cuts, hospitals' seeming inability to collect from delinquent patients...the list of business challenges to hospitals goes on and on.
The number of total hospitals has dropped by more than 1,000 since 1980. Inpatient admissions per 1,000 in population have been falling for 25 years. Employer-based healthcare coverage has been declining for eight years, from 69 percent in 2000 to around 60 percent now. Add to that a president and, to a lesser extent, a Congress who seem intent on holding the line on Medicare and Medicaid reimbursement despite the pain that hospitals are feeling.
I went to a Nashville Health Care Council meeting a couple weeks ago where a panel of Wall Street analysts trotted out these statistics to an audience that had surely heard them before. The council brings in five or so healthcare analysts every January to talk about their prospects for the healthcare sector. They don't exclusively focus on hospitals, of course--the healthcare universe is much more inclusive--but it seemed they all had something negative to say about the industry's near-term prospects. Wayne Smith, the plain-spoken and jocular CEO of Community Health Systems and the chairman of the board at the council, looked on in dismay, it seemed. But looks can be deceiving.
You can miss some signs of success by gazing at the big picture.
Despite all these headwinds, Community's results and its bullishness on the long-term prognosis for the hospital industry is evident not by what the company says, necessarily, but by its actions. Community clearly sees this period as a time of retrenchment, but also of opportunity. The company snapped up Triad Hospitals for $5.1 billion last summer and assumed $1.7 billion in Triad's debt to boot. It leveraged up to do so. A CEO who wants to succeed long-term doesn't buy assets that he thinks will decline in value, and he certainly doesn't borrow money to do it.
The public markets don't buy it, however. Community's stock has declined by around 25 percent since the deal was announced amid a general economic downturn. But the public markets have been wrong before. Clearly, those who know something about acquiring and successfully operating hospitals see value that most others don't. HCA borrowed to get away from the public markets, paying $33 billion, and leveraging its balance sheet severely about 18 months ago to concentrate on its knitting, so to speak, and bide its time until the markets are more receptive and the business climate for hospitals turns more hospitable. Its leadership has done this before to great success, and I wouldn't bet against them this time.
There's more.
It took a little more than six months for the old Triad management team to resurface with its old business model--partnering with nonprofit hospitals in a joint venture model that Wall Street clearly hadn't bought into--a business model that partly forced its sale to CHS last summer. At Legacy Hospital Partners, James T. "Denny" Shelton and his former team from Triad have an initial $500 million stake to play with from private equity firm CCMP Capital Advisors LLC, and new debt will push that figure to $1.5 billion. They don't plan to sit on that money. And a relatively new hospital company, Capella Healthcare, recently spent $315 million to buy nine hospitals from CHS. Tom Anderson, Capella's president, tells me that the "opportunities are significant."
Yes, the opportunities are there. Despite all the headwinds that hospitals face currently, there is a tipping point where hospitals as a sector turn around. Savvy investors aren't saying much with their mouths, but their money is doing plenty of talking. Hospital companies, their leaders and their numerous investors are putting their money where their mouths aren't, betting that tipping point is closer than the rest of us think.
Frustrated by rising benefit costs, executives at an Indianapolis healthcare system proposed a new program to get employees fired up about staying healthy. The proposal, however, generated so much resentment that the system never rolled out the program. The clash between Clarian Health Partners and its 13,000 employees is an example of the skirmishes that loom as employers experiment with tough get-healthy regimes.
Every year hundreds of terminally ill poor people on Medicaid die in sterile hospital rooms because Connecticut won't pay for their hospice care. But Gov. M. Jodi Rell's proposed state budget is calling for amending Connecticut's Medicaid plan to include hospice services for the terminally ill. Connecticut is one of three states without a hospice benefit in its Medicaid program, even though hospice care is more cost-effective than dying in a hospital.
Along with rising healthcare costs, workers need to plan for higher risks associated with financing their care in retirement, experts say. U.S. automakers have already offloaded their retiree healthcare liability by funding special trusts managed by the United Auto Workers union. Investment gains and workers' own cost containment will determine whether money will be there to meet retirees' needs. elephone and utility workers could be the next wave of these arrangements.
Until Peter Betts came to Barnert Hospital in Paterson, NJ, in July 2007, he did not realize just how dire the financial straits were at his hospital, one of the two main medical centers in this struggling city. On the same day, the Bayonne Medical Center completed an agreement for its sale to a limited liability corporation that would assume the bulk of its debt. What has happened in Paterson and Bayonne paints a vivid picture of the distressed situation of New Jersey's hospital industry.
Maryland is considering legislation that would require families to report proof of health insurance coverage for their children on their tax filings, and beginning in three years families with uninsured children would no longer qualify for the state's child tax exemptions. The "Support the Kids First Act" is designed to help the state identify which children are uninsured.