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One Bankrupt Hospital, Eleven Freestanding Emergency Departments And Three Texas Hospitals: HCA’s Spending Spree

Nashville, Tenn.-based HCA Healthcare, one of the country’s largest operators of ASCs, is on a spending spree – inking three deals in the last week.

Most recently, HCA Houston Healthcare purchased 11 freestanding emergency departments from SignatureCare Emergency Center. The deal brings HCA Houston’s freestanding ED portfolio to 26.

HCA Healthcare’s Medical City Healthcare in Dallas acquired Decatur, Texas-based Wise Health System, a formerly locally owned, nonprofit system, and its three inpatient hospitals.

Additionally, HCA will acquire Trinity Regional Hospital Sachse in Texas in a $41 million deal which is expected to close at the end of January. The 32-bed hospital, which opened two years ago, filed for bankruptcy in August after defaulting on around $70 million of municipal bonds.

In 2023, HCA has been focusing on outpatient care, ramping up its urgent care acquisitions. The health system operates about 2,300 ambulatory care facilities, including more than 150 ASCs, and continues to double down on developing outpatient facilities and increasing outpatient procedure migration.

In the third quarter of 2023, HCA reported a 37.4% jump in outpatient revenue, while its operating income was down 4.1% from the previous year.

 

Source: Becker’s ASC Review

Why Experts Say Now Is The Time To Buy Medical Office Buildings

Despite all the doom and gloom of the news about the office sector, one component remains strong: medical office buildings.

It is buoyed by a stable clientele, long-term leases, and a slow pace of new entries. Even better, the buildings’ tenants can rely on a steady flow of customers in need of care. The flow has even increased as a result of passage of the Affordable Care Act, an aging population, and advances in medical technology that enable more procedures to be delivered in lower-cost, more efficient outpatient settings.

And investors are paying attention, according to the just-released 2024 report “Emerging Trends in Real Estate” issued by PWC and the Urban Land Institute. In total, the U.S. healthcare industry represents 17% of GDP. Outpatient care and care provided in medical office buildings is a significant share of the total.

“The sector has also been shifting to a retail mind-set, where hospital systems and providers look to attract new patients and build market share in new areas, contributing to the increased demand for high-quality medical space,” the report noted.

For landlords, medical offices are practically ideal tenants. They may sign leases of 15-20 years and are likely to renew them in order to remain close to their patient base.

“Typically, the renewal rate is 80% or more and rent growth generally ranges between two and three percent a year,” the report stated. “These dynamics have helped the medical office sector maintain healthy fundamentals throughout economic cycles.”

Furthermore, occupancy has risen in recent years as space absorption has outpaced square footage added. The occupancy rate was 92.8% in 2Q 2023.

Nevertheless, “after reaching peak investment volumes of $30.2 billion (annual basis) in the third quarter of 2022, medical office transaction volume has since slowed to $20.2 billion as of the second quarter of 2023,” the report noted.

But while it has slowed, it has not stopped. Transaction volume totaled $4.7 billion in the first half of 2023 – lower than the $10.1 billion sold in the same period of 2022, but consistent with levels seen from 2018 through 2021. Few distressed sales have occurred. The report attributed the lower transaction volumes to a “disconnect” between sellers and buyers.

“But the stage is set for increases in volumes when buyers and sellers can better come together and the capital markets begin to normalize,” it said. “The medical sector is large and investable, comprising over 1.5 billion SF of current inventory. A substantial amount of opportunity exists for investors to take on more ownership.”

By square footage, over half the sector is owned by users – hospitals, providers, and physician groups. The rest is owned by REITs and private investors who use a variety of structures and vehicles to make it work, the report noted. Institutional investors often invest through operating partners, frequently vertically integrated regional or national firms that specialize in the development, acquisition and operation of medical office buildings and often have deep relationships with hospitals, health systems and physician groups.

Speculative development is rare, leaving inventory to increase at a pace driven by tenant demand, currently around 1% and seldom rising more than 2% a year.

The opinion of experts surveyed for the report is largely favorable. Some 48% recommended buying, 46.4% said hold, and just 5.8% said sell. And while 34.3% considered the sector overpriced, that was a much smaller percentage than viewed suburban and central-city offices as overpriced. Some 61.4% thought medical offices were fairly priced and 4.3% thought they were underpriced.

“The medical office sector has matured into an attractive and stable CRE asset class of its own,” the report concluded.

 

Source: GlobeSt

The Case For Growing Healthcare In The Middle Of Nowhere

Rural healthcare can be a headache for leadership, one many systems won’t entertain. But for Wausau, Wis.-based Aspirus, it’s the whole model; it’s the growth plan.

Matt Heywood has been leading the health system for more than 10 years, and he’s always had the same motto, he told Becker’s: “Sometimes in chaos is opportunity.”

That’s certainly been true for Aspirus, which recently inked a deal with Duluth, Minn.-based St. Luke’s. The two entities will combine to form a 19-hospital system at a time when industry M&A has hit a major snag. Healthcare is dealing with an existential crisis and it makes sense that a lot of other systems are putting acquisitions on hold. But St. Luke’s and Aspirus share a similar mission — keeping healthcare local, maintaining consistent quality regardless of ZIP code — so a partnership made sense.

It’s not the first growth move for Aspirus, which is “tucking in” like-minded entities. In 2021, the health system acquired seven hospitals and 21 clinics from Ascension Wisconsin.

“With the Ascension acquisition, by getting that contiguous scale, we’re able to bring orthopedic services, surgical services closer to the patient than before,” Mr. Heywood said. “Because we were doing it on our own. And Ascension was doing it on their own. And neither one of us could effectively get enough scale to provide care to those patients.”

Rural healthcare requires a different approach, according to Mr. Heywood. Some locations are  immune to innovations sweeping urban areas; internet can be inconsistent, nixing telehealth offerings, and patients are widely dispersed, making it difficult to employ hospital-at-home programs. Instead of leaning on the new norm and centralizing care at a few in-person locations, Aspirus aims to expand physical sites of service.

“It’s a model I think a few others are trying, but not many. And the reason not many are trying is it’s a lot of work,” Mr. Heywood said. “It is a commitment that takes the management team, our physicians, and our staff a lot more energy than it would if we just said, ‘You know what? Let’s just ship everything to Wausau or Duluth and not have stuff out in the community for our patients.'”

It’s a delicate balance — sites can’t be too dispersed, because that’s inefficient. But care should remain as local as possible so cancer patients don’t have to drive hours for intravenous therapies. The more scale Aspirus has, the more resources and technology it can deploy, and the better connectivity to larger sites will be.

The health system also aims to utilize critical access designations to their maximum ability, making sure each site can do what it needs to do based on the community’s needs and size.

“We have some critical access hospitals, which we call ‘frontier,’ which are very much EDs with a few beds and clinics,” Mr. Heywood said. “But then you might have what we call a ‘super critical access hospital,’ which is doing outpatient surgeries, orthopedic surgeries, OB, things like that.”

One major challenge: staffing. Worker shortages are a nationwide issue, and rural areas are certainly not immune. Aspirus is working with local community colleges to create feeder programs, looking to employ talented people before they leave, according to Mr. Heywood.

“We are trying to sell that rural America, the Midwest, is maybe not so bad when you’re having Tropical Storm Hilary in Palm Springs, you’re having a major hurricane hit you in Florida, you’re having wildfires here and there,” Mr. Heywood said. “So what we’re trying to do is get people to see that staying close to home is not a bad thing, so we don’t have a flight from rural America that has historically been happening.”

The Aspirus model isn’t a conventional one, but Mr. Heywood has faith in it. Someone has to; about 100 million people live in underserved rural America, and on average, they die two years younger than their urban counterparts.

“You have to look out into the future and see what you think the future is,” Mr. Heywood said, “independently of what everybody’s telling you.”

 

Source: Becker’s Hospital Review