Some Rural Hospitals Are In Such Bad Shape, Local Governments Are Practically Giving Them Away

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Kyle Kopec gets a kick out of leading tours through the run-down hospitals his boss is snapping up, pointing out what he calls relics of poor management left by a revolving door of operators.

But there’s a point to exposing their state of disrepair — the company he works for, Braden Health, is buying buildings worth millions of dollars for next to nothing. At a hospital in this rural community about a 90-minute drive northwest from Nashville, the X-ray machine is beyond repair.

“This system is so old, it’s been using a floppy disk,” said Kopec, 23, marveling at the bendy black square that hardly has enough memory to hold a single digital photo. “I’ve never actually seen a floppy disk in use. I’ve seen them in the Smithsonian.”

Not only is Kopec young, he had limited work experience in hospitals before helping lead a buying spree by Braden Health. His prior work experience includes a three-month stint as an intern in the Trump White House, on assignment through his volunteer position in the U.S. Coast Guard Auxiliary. He worked his way through college at Braden Health’s clinic in Ave Maria, Florida, and became a protégé of Dr. Beau Braden, the company’s founder. Now Kopec’s official title is chief compliance officer, second in command to Braden.

The hospitals Braden Health is taking over sit in one of the worst spots in one of the worst states for rural hospital closures. Tennessee has experienced 16 closures since 2010 — second only to the far more populous state of Texas, which has had at least 21 closures.

The local governments that own these facilities are finding that remarkably few companies — with any level of experience — are interested in buying them. And those that are willing don’t want to pay much, if anything.

“When you’re on the ropes or even got your head under water, it’s really difficult to negotiate with any terms of strength,” said Michael Topchik, director of the Chartis Center for Rural Health, which tracks distressed rural hospitals closely. “And so you, oftentimes, are choosing whoever is willing to choose you. At this point, large health systems have acquired or affiliated with the hospitals that have the fewest problems. And what’s left has been picked over by operators, some of which have gotten in trouble with insurers and even law enforcement for shady billing practicesYou can make it profitable. But it takes an awful lot to get there.”

Braden, an emergency room doctor and addiction specialist, used his savings and inherited wealth to get into the hospital-buying business in 2020. Previously, he tried to build a hospital in southwestern Florida, where he owns the large rural clinic in Ave Maria. After running into regulatory roadblocks, he saw more opportunity in reopening hospitals — which brought him to Tennessee.

Braden Health’s corporate headquarters has 40 employees, according to Kopec. It’s a limited liability company and privately held, so it doesn’t have to publicly share much about its financial figures. But in filings for a certificate of need that outlines why a health care facility should be allowed to operate, Braden revealed $2 million in monthly revenue from the one hospital it ran in Lexington, Tennessee, and its balance sheet showed more than $7.5 million cash on hand.

Since buying that Lexington hospital in 2020, Braden Health has signed deals for three other failing or failed hospitals and has looked at acquiring at least 10 others, mostly in Tennessee and North Carolina. Braden Health’s strategy is to build mini-networks to share staff and supplies.

At the hospital in Erin, much of the facility’s equipment is older than Kopec. And he said using outdated technology has caused Medicare to penalize the hospital with reduced payments.

The attic houses a ham radio system that seemingly never got much use, Kopec said on his way out to the roof. He wanted to show how the giant HVAC system can be controlled only from a rusty side panel accessible by a ladder. Down below, an emergency room has never been used. During a recent renovation that predated Braden Health’s ownership, its doors were built too narrow for a gurney, among other design flaws.

An old operating room is temporarily housing the ER while Braden Health starts work on new renovations. The Tennessee attorney general, who must approve any sale of a public hospital to private investors, signed off in July.

To prevent this hospital’s closure in 2013, Houston County bought it for $2.4 million and raised taxes locally to subsidize operations.

“We had no business being in the hospital business,” Mayor James Bridges said. “The majority of county governments do not have the expertise and the education and knowledge that it takes to run health care facilities in 2022.”

Those with the most experience, like big corporate hospital chains based in Nashville, have been getting out of the small hospital business, too.

Communities have seen unqualified managers come and go. In Decatur County, where Braden Health is also taking over the local hospital, the previous CEO was indicted on theft charges that remain pending. And the Tennessee comptroller determined the hospital helped endanger the finances of the entire county.

“You’re looking to someone who supposedly knows what to do, who can supposedly solve the issue. And you trust them, then you’re disappointed,” said Lori Brasher, a member of Decatur County’s economic development board. “And not disappointed once, but disappointed multiple times.”

Brasher expressed much more confidence in Braden Health, which she said has concrete plans to reopen, though the timing has been delayed by an unresolved insurance claim from a burst water line that flooded a wing of the hospital.

Local residents still have trouble stomaching the sticker price: $100 for a property valued at $1.4 million by the local tax assessor. In addition to that low price, Braden Health won tax breaks for committing to invest $2 million into the building.

The Houston County hospital is valued at $4.1 million by the property assessor. But the final sale price was just $20,000 — and that wasn’t for the land or the building. Kopec said the amount was for a 2016 ambulance with 180,000 miles — deemed the only equipment with any remaining value.

An agreement with Braden Health to take over the shuttered hospital in Haywood County, Tennessee, valued at $4.6 million, was a similarly symbolic payment. All told, Braden Health is getting more than $10 million worth of real estate for less than the price of an appendectomy.

Kopec contends the value for each property is essentially negative given that the hospitals require so much investment to comply with health care standards and — according to the company’s purchase agreements — must be run as hospitals. If not, the hospitals revert to the counties.

Most of the funding for restoring these facilities comes directly from Braden, who thinks people overestimate the value of hospitals his company is taking over.

“If you look honestly at a lot of transactions that take place with rural hospitals and how many liabilities are tied up with them, there’s really not a lot of value there,” Braden said.

Braden recently paid off a $2.3 million debt with Medicare for the Houston County hospital. He said there’s no secret sauce, in his mind, except that small hospitals require just as much diligence as big medical centers — especially since their profit margins are so thin and patient volume so low. He wants to improve technology in ways that health plans reward hospitals, limit nurse staffing when business is slow, and watch medical supply inventories to cut waste.

“A lot of people aren’t willing to put in the time, effort, energy, and work for a small hospital with less than 25 beds. But it needs just as much time, energy, and effort as a hospital with 300 beds,” Braden said. “I just see there’s a huge need in rural hospitals and not a lot of people who can focus their time doing it.”

It’s a tall order. Braden said he can understand any skepticism, even from the hospitals’ employees. They’ve heard turnaround promises before, and even they can be wary of the care they’d get at such run-down facilities.

Still, as Kopec bounced through the Erin hospital’s halls, he greeted nurses and clerical staff by name with a confidence that belies his age and experience. He tells anyone who will listen that rural hospitals require specialized knowledge.

“They’re not the most complicated things in the world,” Kopec said. “But if you don’t know exactly how to run them, you’re just going to run them straight into the ground.”

 

Source: News-Medical Life Sciences

Real Estate Could Have A Role To Play In Alleviating Medical Staffing Squeeze

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Battered by the lingering pandemic, a rise in inflation, supply chain slowdowns and recessionary fears becoming reality, the healthcare industry has faced crisis after crisis over the past several years.

But it could be commercial real estate to the rescue, at least partially, to help solve one of the industry’s most longstanding, yet persistent problems: healthcare’s chronic staffing issues.

Healthcare experts at Bisnow’s Chicago Healthcare & Life Sciences Real Estate event Aug. 11 at Illinois Science + Technology Park said that though challenges to the industry are overt, real estate is poised to be a partner in helping healthcare reconsider how it uses space for patient care in the current market, especially in light of staffing shortages exacerbated by years of a punishing pandemic.

“A lot of what we see in healthcare real estate decisions is using the real estate in a way to leverage staffing issues,” Ryan Cos. Vice President of Development-Healthcare Curt Pascoe said. “CRE can help fill gaps by optimizing space, either consolidating locations or reconstructing locations in a way that allows you to eliminate a front desk person or eliminate a nursing position.”

Even before the pandemic, the nation suffered from a lack of skilled nurses and other healthcare workers. Then some 1.5 million healthcare jobs were lost in the first two months of the pandemic alone as clinics closed and U.S. hospitals restricted services. Most jobs have since returned, though healthcare employment remains 1.1% below pre-pandemic levels, according to Colliers’ 2022 Mid-Year Healthcare Outlook — many of them lost permanently to burnout.

Shawn Janus, national director of U.S. Healthcare Services at Colliers, said that while he has seen persistent staffing shortages throughout his past 20 years in the industry, he is most concerned about the looming physician shortage, which the Association of American Medical Colleges predicts will cause the U.S. to need 37,800-124,000 more doctors in the next 12 years.

As healthcare facilities look to scale back and cut costs in the face of rising inflation, panelists said, they’re also making reductions in administrative spending to account for pandemic staff losses and increasing demands by millennials for flexible work options.

That’s where real estate can step in, helping healthcare consolidate or reconfigure space to minimize staffing holes.

“A lot of those hospitals have that administrative space in the hospital, which is already certified for joint commission and other regulatory bodies, so changing that into clinical space makes great sense,” said Allyson Hanson, CEO and executive director of the Illinois Medical District.

That switch is not always easy though, according to Janus, who said health system executives are being cautious about using space they have no way of filling given current staff shortages. He said internal goals by hospital executives aimed at decreasing at least 50% of administrative space is the biggest shift the healthcare industry is seeing.

To counter that, Hanson said, helping healthcare providers find new business models that reimagine methods of care and patient services in the face of staff cuts and downsizings is paramount.

Telemedicine is one way industry providers continue to optimize in the face of consumer needs. That means the tech CRE brings in must be on point.

Michael Becker, senior director of real estate services at Anne & Robert H. Lurie Children’s Hospital, told the panel that the percent of people communicating with clinicians virtually is up, even now as panic over the pandemic winds down, adding there is particular room for growth when it comes to behavioral health-based services.

“Basically we’re stable at pre-pandemic levels and we’re now stable at 7% of total visits so our use has doubled in a couple of years,” Becker said. “I see that continuing to grow, but not dramatically, at least not in the next five-10 years.”

Becker said that though telemedicine ramped up from 3% to 40% at the height of the pandemic, it was hugely challenging for the hospital’s technology team. While incorporating tech is important, he said, brick-and-mortar facilities will still carry the industry.

In fact, demand for medical office buildings continues to drive new construction activity and acquisitions across Chicagoland. And while cap rates have risen on average, they have continued to compress for on-campus medical office buildings which set record highs for asking rents and sales volume in 2021, despite pandemic stressors. A similar resiliency is expected to persist into the near future.

“Medical office as compared to office or retail or some of the other food groups is still considered a better investment and will weather this turn better,” Janus said.

 

Source: Bisnow

New Clermont Project With Restaurants, Shops, Medical/Office Space In The Works In Florida

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A 16-building, mixed-use project with roughly 100,000 square feet of retail, restaurant and medical/office space is in the works for a fast-growing Lake County corridor.

Winter Garden-based Schmid Construction Inc. is the applicant and developer behind the Cross Ridge Exchange project, to rise on 11.3 acres along U.S. Highway 27 in Clermont.

Schmid Construction Principal and CEO John Schmid confirmed to Orlando Business Journal that the firm has the land under contract from Lake Wales-based Lost Lake Reserve LC and will be the general contractor for the $14 million project.

Cross Ridge Exchange will rise nestled between an existing BJ’s Wholesale Club and Walmart Supercenter.

“That’s really the strength of the project,” Schmid said, referring to the location.

The development will feature at least 50,000 square feet of retail and restaurant space across nine buildings closest to U.S. 27, in addition to at least 39,000 square feet of medical/office space across eight buildings toward the property’s back end, along Cross Ridge Road.

Building sizes are not yet final, and Schmid said they are pursuing permission for up to 115,000 square feet to have some buffer if the project needs to be larger.

Cross Ridge Exchange was given approval from Clermont’s planning and zoning commission earlier this month and next will go before its city council for its conditional-use permit.

Schmid said site work may start within the next few months and the goal is for vertical construction to begin in the first quarter of next year, with an anticipated delivery by the end of 2023.

Schmid Construction will serve as general contractor, and subcontractor opportunities will be available. Opportunities for site work may be put out to bid within the next few months and construction opportunities should be put out to bid early next year.

Orlando-based First Capital Property Group is handling leasing for the development, with senior sales and leasing associate Trey Gravenstein telling OBJ it has attracted good activity and two letters of intent so far after going live July 27.

 

Source: OBJ