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This Health System’s Nontraditional Investment Strategy Targets Population Health

Analysis  |  By Philip Betbeze  
   June 08, 2017

An Ohio health system bought 70 acres of blighted downtown real estate near its safety net hospital and has a deal with a developer to build housing and retail space in addition to expanding to local parks system.

As a health system CEO, Randy Oostra knows that "job one," as he calls it, is clinical excellence.

But as the leadership and board at Toledo, Ohio-based ProMedica have educated themselves in on the impact of the social determinants of health, the health system's focus has evolved to be more deeply involved in areas some would consider far afield of the mission of treating and preventing illness.

These include affordable housing, inner-city groceries, community outreach, and increasingly, real estate investment.

The most recent evidence of that strategic priority is embodied in a deal between ProMedica and Columbus, Ohio's Continental Real Estate Companies, that aims to redevelop approximately part of a 70-acre plot  of downtown property in the city's Marina District into housing and retail space. The rest of the property will serve as an addition to the city's park system.

ProMedica purchased the 70-acre property in 2016 with the city's cooperation in a bid to redevelop a portion of the property and sell approximately 50 acres of it under favorable terms to Metroparks, Oostra says.

The deal is ambitious and unusual, but it's grown out of previous projects that have proved the concept, he says. "The idea is to use our resources to drive economic development and attack tenacious community problems."

Originally from Iowa, Oostra has led ProMedica for 20 years. It is the area's largest employer with 15,000 employees.

Over time, he's convinced the board of the viability of using the capital resources of the health system to "drive economic development and attack tenacious community problems."

In Toledo's case, many of those problems stem from its loss over time of large manufacturing-based employers, including a number of Fortune 500 companies. That and other factors have left areas of downtown Toledo blighted, pockmarked with vacant buildings, and suffering from high unemployment and all the challenges associated with urban decay.

Using Health System Capital as Leverage

During Oostra's tenure, the 12-hospital health system has embarked on a number of smaller redevelopment projects, such as the purchase of an old hotel out of bankruptcy and facilitating its rehabilitation under a new owner.

In August, that hotel will reopen as a Marriott Renaissance. The health system has also moved its headquarters to the area, and facilitated the rehabilitation of numerous other downtown buildings including an old steam plant, to help move as many as 2,000 employees to the area near where it operates the safety net ProMedica Toledo Hospital and Toledo Children's Hospital.

In all cases, ProMedica served as the source of capital, but Oostra says "our capital got in and got out."

His "lightbulb moment" was ProMedica's involvement with the obesity issue around the time of the passage of the Affordable Care Act.

"Our attempt was to educate children and their parents about healthy eating. But these kids were hungry," he says. That led to the establishment of the health system's full-service grocery in an area of the city that had been labeled a "food desert."

He says that at first, the board hoped this was something that leadership would "try [once] and get out of our system," but as the projects have gotten larger and have succeeded without encumbering the health system with management of organizations outside the direct delivery of care, the board has gotten more enthusiastic about using the strategy to address social determinants of health.

"We realized we can be a catalyst not only to treat people who are sick, but to create well-being in our communities," Oostra says.

"As we've rolled along, there was convincing needed, but the more we've done, we've been blessed with success, so they've gotten more comfortable doing it. We have to continue to describe why we're doing it. So that's our biggest challenge because it's nontraditional."

The rating agencies are another story, and they have been skeptical of these activities to some degree, he says.

Pushback from Ratings Agencies

In fact, Moody's downgraded the system's $775 million in debt in March from Aa3 to A1, which is still high investment grade, with a stable outlook. But much of that downgrade was attributed to a large operating loss and an unexpected liquidity decline in FY 2016—largely from ProMedica's traditional operations. Many others in the hospital sector experienced similar issues in 2016.

"We have gotten pushback from the rating agencies," Oostra says. "They might think we're trying to do too much. We just installed Epic [software] and they think we're trying to take on too much at once."

But Oostra and his leadership team are undeterred.

As for future nontraditional activities, such as its upcoming deal to redevelop the property not being sold to Metroparks with a mix of retail, apartments, restaurants and a hotel, ProMedica is still interested in serving as a catalyst and short-term investor in property going forward.

There will always be skeptics, Oostra says, but he is happy to be a leader in extending the definition of addressing social determinants that affect the health of the communities ProMedica serves. Such an extension of the health system's reach is essential to bending healthcare's cost curve, he asserts.

"I understand [the skepticism], but 95% of our resources are still in the clinical bucket," he says. "On the other hand, we feel passionately about this and we can't just sit around and witness the effect of poverty on people's health and lives."

Philip Betbeze is the senior leadership editor at HealthLeaders.

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