The health system's financial unraveling has similarities to the much-maligned collapse by Steward Health Care.
The spotlight on private equity ownership in healthcare is burning even brighter after Prospect Medical Holdings' descent.
The California-based for-profit health system filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Northern District of Texas after its former private equity owner extracted value and saddled it with significant debt.
In its filing, Prospect declared between $1 billion and $10 billion in assets and liabilities, along with more than 100,000 creditors.
The company, which operates 16 hospitals across California, Connecticut, Pennsylvania, and Rhode Island, said in an announcement on its website that the move will allow it to "refocus on its core strength and return to fulfilling its mission of operating community hospitals in California." Prospect also stated it plans to keep its hospitals, medical centers, and physicians' offices open during the restructuring process.
It's been a struggle for Prospect to divest its hospitals. The system's deal with Yale New Haven Health for three Connecticut facilities has been stuck in a lawsuit due to the buyer's concerns over conditions and missed payments.
Meanwhile, Prospect has seen two separate deals to offload Crozer Health fall apart, with the first coming in 2022 with ChristianaCare Health System and the most recent coming in recent months with CHA Partners.
By filing for bankruptcy, Prospect said it will work with Pennsylvania to find a buyer for Crozer Health and speed up the sale of two Rhode Island hospital to the Centurion Foundation, which has been slowed by worries over mismanagement.
"Divesting our operations outside of California will ensure that they receive necessary financial support so that the communities that rely on those facilities will maintain continued access to highly coordinated, personalized, and critical healthcare services long into the future," Prospect CEO Von Crockett said in a statement.
Another private equity disaster
Prospect has gone down a similar path to the one Steward Health Care received criticism for due to the role private equity ownership played.
Dallas-based Steward filed for Chapter 11 bankruptcy as well and put all 31 of its U.S. hospitals up for sale, with previous private equity owner Cerberus Capital Management receiving much of the blame.
In the case of Prospect, private equity firm Leonard Green & Partners owned the system from 2010 to 2021. A bipartisan report from the Senate Budget Committee released this month highlighted how Leonard Green "wielded substantial influence" over Prospect's financial decision-making and collected $424 million of the $645 million in dividends and preferred stock redemption that Prospect paid out to investors.
The report also outlined how Prospect became financially distressed through a $1.55 billion sale-leaseback with Medical Properties Trust. The maneuver provided the system with immediate capital but left it with debt from rent payments. Medical Properties Trust said in a release that Prospect has not paid any rent since last June.
Leonard Green and Prospect's "primary focus was on financial goals rather than quality of care at their hospitals, leading to multiple health and safety violations as well as understaffing and the closure of several hospitals," the Senate report stated.
As Prospect works to "regain its financial footing," according to Crockett, the deterioration of two private equity-backed health systems in the past year is further placing regulation of hospital ownership at the forefront of lawmakers' minds.
The retail pharmacy giant's financial recovery "will take time," CEO Tim Wentworth cautioned to investors.
Walgreens' first quarter earnings beat Wall Street expectations, signaling that the company is heading in the right direction after falling into financial turmoil.
The retail pharmacy operator logged a net loss of $265 million in the quarter, compared to a loss of $67 million a year ago, but also saw its sales increase by 7.5% over the same period in 2024 to $39.5 billion.
CEO Tim Wentworth stated that the results were driven by the stabilization of its core retail pharmacy business, along with managing operating costs and addressing reimbursement models.
"Our first quarter results demonstrate that we are executing against our long-term strategic priorities," Wentworth told investors on an earnings call.
Walgreens, like other companies in the retail pharmacy space, has struggled with challenges related to low reimbursement and dampened consumer demand. The company's financial troubles have been heightened by the losses it has been incurring with its primary and specialty care offerings.
With its market value recently dipping under $8 billion after exceeding $100 billion in 2015, Walgreens is reportedly considering a sale to private equity firm Sycamore Partners, according to the Wall Street Journal.
In the meantime, the company has found enough of a footing with its finances to provide reason for optimism going forward.
"While we are pleased with our first quarter results, there is more work to be done as we aim to strengthen our balance sheet and to ensure longer-term positive cash flow generation," Wentworth said. "We remain committed to achieving a retail pharmacy-led turnaround, underpinned by a sustainable economic model. Our turnaround will take time, but as the quarter's results demonstrate, we are executing with urgency and believe the actions we're taking will be the basis for sustained value creation over the long term."
One area Walgreens has made headway is with its reimbursement models. Wentworth told investors that the company has completed all its contract negotiations for calendar 2025 and had success in adjusting contracts to better align reimbursement with cost of goods.
"We are also expanding discussions about being compensated for additional services beyond dispensing and promoting alternative payment models," Wentworth said.
In terms of managing its footprint and costs, Walgreens closed 70 stores in the first quarter and plans to close another 450 for the year.
The company has been shrinking the presence of VillageMD clinics as well while it explores selling part or all of the primary care business. In the second quarter of last year, Walgreens reported nearly $6 billion in net loss from its investment.
However, VillageMD's sales have trended up, leading to a 9% year-over-year growth in the first quarter to $1.6 billion.
"We are underway with a sale process for Village Medical while continuing to evaluate the best options for Summit-CityMD," Wentworth said. "We are encouraged by the leadership of new CEO, healthcare veteran Jim Murray. To be clear, our ultimate intent to exit is unchanged, and we remain committed to redeploying any proceeds to reduce our net debt and improve the health of our balance sheet."
The improved performance of VillageMD and Shields allowed Walgreens to bring its operating loss in the U.S. healthcare segment down to $325 million in the first quarter, compared to $436 million last year.
Investors have reason to be more confident in pursuing and completing deals in the next 12 months.
The new year is expected to bring with it a more favorable environment for dealmaking within health services.
Thanks to plenty of capital available to corporate and private equity investors, the potential for further interest rate cuts, and policy by the incoming presidential administration driven by a pro-business stance, M&A activity should continue to rise in 2025, according to a report by PwC.
Health services deals actually declined last year, totaling 1,373 through November 15, which was a 9% drop-off from the 1,506 transactions in 2023. Still, 2024's figure was nearly 70% higher than the pre-pandemic trends of 828 deals in 2019 and 814 moves in 2020.
“Dealmakers within health services continue to demonstrate the sector’s resilience despite regulatory uncertainty and broader reimbursement headwinds," Nick Donkar, PwC's US Health Services Deals Leader, said in the report.
Deal value, meanwhile, trended up last year with $69 billion recorded, compared to $63 billion in 2023. Megadeals, or transactions greater than $5 billion in value, remain on the decline as 2024 saw $17 billion in megadeals value. That number hit a high of $115 billion in 2021 before falling to $54 billion in 2022 and $23 billion in 2023, demonstrating the cooling effect of the regulatory climate on larger deals, PwC said.
The report also highlighted the increased hold period for investments, which is set to spur a flurry a moves to create returns.
The year-to-date 2024 average hold period of health services portfolio companies for global private equity investors is 5.5 years, outside the traditional three to five-year investment model. Private equity investors are expected to be motivated to cash in on those assets and pour the resources into new ventures.
On the policy side, while there is a wait-and-see approach to how the incoming administration acts, the current sentiment is that it shouldn't hinder dealmaking.
"The Trump administration’s stance on antitrust issues will be closely monitored in the first months of the administration and investors are cautiously optimistic that the administration will relax enforcement actions and have a more deferential view towards markets," the report stated.
Hospitals leaders share their tips for creating alignment after completing a merger or acquisition.
For CEOs, the work on a merger doesn't stop the moment a deal is closed. Post-merger, leadership must integrate hospitals, cultures, operations, and systems to deliver on the value of the move.
In HealthLeaders' The Winning Edge for Transforming Through M&A, Aspirus Health CEO Matt Heywood and University Health CEO Ed Banos outlined steps for organizations to take in the wake of a merger.
An ever-changing environment is placing greater importance on pursuing integration and getting it right, say hospital CEOs.
In the first webinar of HealthLeaders' The Winning Edge series, Aspirus Health CEO Matt Heywood and University Health CEO Ed Banos discuss how health systems can pursue M&A to achieve growth in several areas, from reaching new markets to advancing technology.
Tune in to hear the panelists offer their insight on trends driving dealmaking and what M&A strategies have allowed their organizations to grow.
HealthLeaders' The Winning Edge for Transforming Through M&A identified key areas that organizations should strategize for.
Mergers and acquisitions will always be a vital strategy for providers to achieve growth and sustainability, but the context shaping the dealmaking landscape continues to change.
Hospitals and health systems right now are dealing with a volatile environment consisting of inflationary pressures and business adversity risk, forcing CEOs to be thoughtful, yet willing, in pursuing integration.
In HealthLeaders’ The Winning Edge for Transforming Through M&Athis week, University Health CEO Ed Banos and Aspirus Health CEO Matt Heywood discussed current trends and success factors for organizations considering consolidation.
Here are three areas leaders at the highest level are accounting for in their M&A strategy:
Balancing financial health and patient care
The reality of hospital M&A is that while it may be necessary for the viability of some organizations, it can also potentially have a negative impact on patients and communities.
A recent study published in the Journal of the American College of Surgeons found that quality of care was either lower or unchanged 77% of the time after integration, whereas 93% of cases showed increased prices.
The problem, however, is that organizations can't provide the kind of care and access that is necessary for their community without ensuring the bottom line is strong enough to keep the doors open.
"In our organization, our motto is to be a strong, vibrant organization first and foremost Then, if that means we make tough choices, then we need to make tough choices," Heywood said. "We need to make sure that our services are there for our community. They just may have to be there sometimes in a different location or in a different manner."
That can make M&A a bit of a balancing act, but diversifying is a way for hospitals to alleviate some of the financial burden and serve patients in a better manner at the same time, according to Banos.
For example, University Health has implemented and grown its Hospital at Home business, which has decompressed a lot of patients that don't need to be in hospitals but are still sick enough to require care.
Banos said: "When you're looking at a merger and acquisition, what is the business that they can bring you that is going to help fund some of the uninsured commitments that we have as a public institution so that you make money on the good so that you can help pay for the underinsured?"
Outpatient investment
A significant trend that is influencing M&A activity currently is the push by providers towards offering more outpatient sites of care.
Organizations like Community Health Systems and Ardent Health have targeted the acquisition of urgent care centers recently to leverage their profitability and cost-friendlier models in comparison to inpatient care.
Kaufman Hall's most recent National Hospital Flash Report showed that outpatient revenue per calendar day jumped 7% month over month in October, outpacing inpatient revenue's increase of 1%.
"Driving the cost down is very, very important and when you can treat a patient in an ambulatory setting or even through population health and public health, you can try and manage illness and well-being before it becomes an acute issue," Banos said. "We know that in the long run will prevent high-cost admissions for sure on your underinsured or uninsured."
Focusing M&A investment on outpatient services may not make sense for every organization though. For Wausau, Wisconsin-based Aspirus Health, the rural market it serves requires a higher acuity capacity to deal with an aging population and their severity of illnesses, according to Heywood. That's leading to a greater emphasis on hospital beds, not less.
"It was a little surprising for us as we were heavily for years pushing to the outpatient market as everybody's talked about and now we're finding that the aging population is starting to overwhelm people's perspectives of how many beds are needed and we're actually having to try to catch up on that," Heywood said.
Advancing technology
M&A also affords organizations an opportunity to adopt or improve digital health solutions.
For both Banos and Heywood, that technology-forward mindset post-merger starts with the EHR and EMR platforms.
"We've really invested into 'let's utilize as much of our EMR as we can to the full extent,'" Banos said. "If there's something out there that Epic rolls out, we want to be one of the first ones to do it and we try doing that all the time. That, when we go and take over a practice or dialysis center or a freestanding emergency room, really has helped us because they see that they don't have the dollars to invest in that."
When you're using a platform like Epic which can have multiple versions, you want to optimize it by having any future partners on there as fast as possible and on the same maximized version, Heywood stated.
Then, organizations can replace add-ons with upgrades by Epic when it rolls them out to ensure they're sticking to one platform as much as possible, making it easier to keep up to date.
"What we want to do is get our platforms tight and we want to get them right and we want to keep them upgraded. The minute we have an acquisition or a partner, we want to get them on those structures," Heywood said.
Beyond the EHR and EMR platforms, Banos recognizes the value of implementing various technologies in different settings, such as AI in diagnostics and robotics for floor cleaning.
"We're trying to use everything we can to help," Banos said. "While it might be a little expensive now, we know in the long run it's going to be a better solution going forward."
The health system is investing in ambulatory operations in two different markets to reach new patients.
After setting its sights on expanding ambulatory care, Ardent Health continues to make moves to grow its network.
The latest deal featuring the for-profit health system saw it acquire 18 urgent care clinic clinics from NextCare Urgent Care, solidifying its presence into New Mexico and Oklahoma.
The transaction adds to the nine urgent care centers Brentwood, Tennessee-based Ardent Health picked up in East Texas and Topeka, Kansas in 2024.
Of the 18 facilities purchased from NextCare, 12 will become part of Hillcrest HealthCare System in Oklahoma, while six will be part of Lovelace Health System in New Mexico. Through its subsidiaries, Ardent Health operates five hospitals and 25 sites of care in New Mexico, along with eight hospitals and 57 sites of care in Oklahoma.
Financial terms of the agreement were not disclosed.
"Expanding our urgent care footprint represents significant progress in our mission to create a consumer-focused ecosystem of care in each of the communities we serve," Ardent Health president and CEO Marty Bonick said in a statement. "We’re helping patients receive the care they need, when and where they need it, by increasing access to convenient, high-quality services. These additional access points also bring new patients into our network while creating enhanced capacity to serve patients within our clinics and Emergency Departments."
Ardent Health closed its initial public offering in July, which allowed it to raise $192 million. In the wake of going public, the organization stated it would pursue dealmaking for outpatient services, including ambulatory care.
Investment on the outpatient side has been a popular strategy of late for traditional providers due to its ability to capture new patients without incurring the same level of costs that come with inpatient care.
The latest National Hospital Flash Report by Kaufman Hall revealed that outpatient revenue per calendar day increased 7% month over month, besting inpatient revenue's rise of 1%.
Beyond its footprint in New Mexico and Oklahoma, Ardent Health also operates in Idaho, Kansas, New Jersey, and Texas. Overall, the organization has 30 acute care hospitals and more than 200 sites of care with over 1,800 affiliated providers.
Whether it's quality, prices, or spending, consolidation doesn't often enhance the value of care delivery.
As more and more hospitals and health systems pursue integration, the potential negative impact on patients shouldn't be overlooked.
Consolidation seldom leads to better quality of care delivered or reduced prices, according to a study published in the Journal of the American College of Surgeons. Organizations must weigh the strategic and financial benefits of mergers and acquisitions against the consequences for the communities they serve.
The study's authors reviewed 37 studies published from 2000 to 2024 that met the criteria of including horizontal or vertical consolidation, and reporting on at least one measure of value (price, cost/spending, and quality).
Of the 26 studies that measured quality of care, 20 (77%) demonstrated no change or lower quality after integration, while only six studies showed improved quality, driven by better care management processes instead of outcomes.
Of the 14 studies measuring price changes, 13 (93%) featured increased charges, whereas 13 of the 16 studies (81%) focused on health care spending revealed higher costs or no charge.
“Proponents of health care integration have claimed it controls costs and enhances care quality,” Bhagwan Satiani, lead study author and professor of surgery emeritus at The Ohio State University Wexner Medical Center, said in a statement. “But we found that evidence is lacking that integration alone is an effective strategy for improving the value of health care delivery.”
Overall, eight of the 37 studies (22%) found that integration had a positive net impact, versus 20 studies (54%) which showed a negative net impact.
“These findings provide an opportunity to better define value with a focus on benefiting patients while balancing the financial stability of the health care industry,” Satiani said. “Quality improvement in health care cannot be achieved by mergers and acquisitions alone.”
A new report assesses the well-being and distress levels of groups within the industry.
To improve employee retention, it remains vital that hospital and health system CEOs focus on reducing burnout.
Fortunately for organizations, fewer healthcare workers reported feeling burned out in 2023 compared to 2022, according to the 2023-2024 State of Well-Being Report.
The Well-Being Index, developed by Mayo Clinic, gathered 79,022 assessments across various healthcare occupations in 2023 to track how groups are distressed.
When respondents were asked if they felt burned out from their work in the past month, 50% answered yes in 2023, a decline from 54% in 2022.
Pharmacy professionals experienced the most burnout among professions at 62%, but that figure was also lower than in 2022 (66%).
Meanwhile, burnout for nurses and physicians was at 52% and 51%, respectively, in 2023, compared to 60% and 53% in 2022. The drop for both group is likely indicative of organizations enhancing and offering more well-being initiatives, particularly on the nursing side. More nurses in 2023 (51%) said they strongly agreed or agreed with the statement "my work schedule leaves me enough time for my personal/family life" than in 2022 (47%), while fewer reported emotional problems in 2023 (60%) than in 2022 (64%).
The only group that saw the burnout trend reversed was medical students, with 58% reporting burnout in 2023 versus 51% in 2022.
Hospital and health system CEOs may not be able to influence burnout at the medical school level, but they should be working to ease stress for their younger works to ensure staff are supported and eager to remain in the profession. Younger clinicians ages 18 to 29 especially value when their organizations address racism and discrimination in the workplace, according to a survey conducted by the African American Research Collective, in partnership with the Commonwealth Fund.
Even though burnout rates are showing improvement, CEOs continue to place an emphasis on the well-being of their employees to combat a projected workforce shortage of over 100,000 critical care workers nationwide by 2028.
A study examines the differences in margins and commercial prices between critical access hospitals and other acute care hospitals.
Among hospitals facing financial pressures, critical access hospitals (CAHs) are particularly in a precarious position.
Compared to other acute care hospitals, CAHs have lower operating margins, with the gap even wider for independent and system-affiliated CAHs, according to a study published in JAMA Health Forum.
Researchers from Brown University and Johns Hopkins University obtained operating margins and hospital prices on over 4,000 hospitals in each dataset, limited to general medical and surgical hospitals and excluding speciality hospitals from 2016 to 2022.
The data revealed that the average operating margin was 2.6% for independent CAHs and 7% for system-affiliated CAHs, versus 11.4% for independent non-CAHs and 16.6% for system-affiliated non-CAHs.
Operating margins for system-affiliated CAHs were 63% higher than for independent CAHs, highlighting the discrepancy in negotiating leverage with commercial insurers, the authors stated.
The one area CAHs had favorable operating margins was in Medicare, where CAHs were around 2% while non-CAHs were approximately -4%. All hospitals, however, had similar Medicaid operating margins at around -18%.
In terms of standardized inpatient commercial prices, system-affiliated CAHs were 7.1% higher than independent CAHs, whereas independent non-CAHs were 15.4% lower and system-affiliated non-CAHs were 13.2% higher.
Though system affiliation can improve the financial health of hospitals and especially give CAHs some relief, it has shown to also result in higher prices for patients.
"Policymakers interested in improving patient access to hospital care in rural areas should consider the impact of consolidation for both CAHs and non-CAHs, such as whether the increased commercial prices associated with system affiliation correspondingly lead to improved and sustained patient access to care," the authors wrote.
