• July 31, 2021

Flurry of hospital offers reshape Atlanta healthcare market

May 21, 2021

Alex Kacik: Good day, and welcome again to Fashionable Healthcare’s Past the Byline, the place we provide a behind the scenes look into our reporting. I am your host, Alex Kacik. I write about hospital operations for Fashionable Healthcare. Right now I am speaking with Tara Bannow, our finance reporter, to speak about hospital mergers and acquisitions. Thanks for becoming a member of me, Tara.

Tara Bannow: Thanks for having me.

Alex Kacik: Tara, we wrote a couple of trio of offers that occurred over the past month, shuffling some Atlanta space hospitals round. May you’re taking me by way of a few of them?

Tara Bannow: Yeah, a variety of Atlanta information. First there was the announcement at first of Could, that Piedmont was shopping for 4 hospitals from HCA, all inside about 90 miles of Atlanta, the place Piedmont’s based mostly. They count on to shut that deal by the top of July, I believe they count on to have a fairly straightforward time with it. Then a couple of week later, Piedmont introduced it plans to purchase College Well being, which is a three-hospital system in Augusta. Augusta’s about 150 miles Southeast of Atlanta.

Piedmont CEO instructed me, by the way in which, that the timing of these bulletins was simply coincidental. College had gone by way of an extended course of of selecting a associate after which it landed on Piedmont. That deal, they count on to shut on the finish of the 12 months. The very subsequent day, after that Piedmont and College Well being announcement, HCA introduced it was promoting a hospital in Rome, Georgia, which is about 70 miles Northwest of Atlanta, to Creation Well being. That’s a part of HCA’s technique to get out of the larger Atlanta space and focus on its 5 hospitals in Southeast Georgia, the place it just lately purchased one other hospital.

Alex Kacik: For Piedmont, they’re getting what? Seven hospitals in a brief span. It does not sound like that was deliberate, and such as you mentioned, HCA had this philosophy that it operates in markets the place it desires to guide, after which it has a bundle of providers throughout acute and outpatient care and residential care. I do not suppose it noticed a means ahead on the acute aspect to compete with the likes of Piedmont, Emory and the opposite massive gamers. We determined to look into this to grasp, is that this a coincidence simply when it comes to all this exercise on this market, is there one thing distinctive about this? Why are these methods deciding to dump a few of their hospitals to those different gamers?

We had been wanting on the monetary information to determine in regards to the hospitals. Tara, if you wish to take me by way of what you discovered whenever you had been wanting on the monetary information. We checked out these hospitals and a variety of instances we’ll see distressed hospital gross sales, ones that are not financially performing effectively, however that wasn’t the case right here. You had fairly worthwhile hospitals and it appeared just like the patrons had been fascinated with and noticed a chance right here to tackle this market share, after which tackle hospitals that had been doing fairly effectively.

Tara Bannow: Yeah. This can be a nice deal for Piedmont truly, this isn’t the standard distressed hospital sale in any respect. As you mentioned, the 4 HCA hospitals that Piedmont goes to purchase are very worthwhile. Fashionable Healthcare makes use of Medicare value studies, that are annual studies which might be on the facility degree that hospitals file with CMS. It isn’t going to incorporate earnings bills which might be centralized on the well being system degree. In different phrases, you could not add up all of HCA’s hospitals within the database to reach at HCA’s complete income and bills.

It is a bit of completely different in that means than an audited monetary assertion or perhaps a quarterly monetary report. However that mentioned, it is actually attention-grabbing information to take a look at if you wish to get info on a particular hospital. Anyway, these HCA hospitals, there’s this Cartersville Medical Middle, it is a 119-bed hospital, they posted a remarkably excessive, nearly 33% working margin, in 2020. That’s unprecedented, I really feel like, for a small hospital like that. Cartersville is about 40 miles from Piedmont’s Atlanta hospital, in order that’s in all probability going to be a extremely good referral supply for Piedmont.

The deal additionally expands Piedmont into Macon, Georgia, lower than 90 miles from Atlanta. HCA is bigger. It is received a bigger 300-bed hospital in Macon that had a couple of 12% working margin in 2020, which is excellent. The smaller hospital there that Piedmont’s going to purchase from HCA has a 4% working margin. There’s one other HCA hospital in Snellville, which is about 30 miles from Atlanta. That they had nearly a 5% working margin in 2020. That is additionally an excellent get for Piedmont as a result of it is going to be a extremely good referral supply.

All 4 of those hospitals that HCA is shopping for averaged 13.4% working margins of their newest value studies, which is significantly better than the 6.7% throughout Piedmont’s 11 hospitals within the newest value studies. So yeah, these are very worthwhile hospitals. I’d count on for-profit hospitals to only sometimes be a bit of bit extra worthwhile than not-for-profits, however this was means above my expectations. Piedmont’s hospitals, I believe it is necessary to notice, are fairly worthwhile in their very own proper.

Piedmont’s hospital in Stockbridge, Georgia posted nearly a 17% working margin in 2020, which is large. Piedmont has two hospitals in Columbus which might be fairly worthwhile as effectively, 13% and nearly 16% working margins. 4 of Piedmont’s hospitals truly misplaced cash in 2020. They don’t seem to be all doing nice.

Alex Kacik: Piedmont is likely one of the few massive gamers within the acute care area there, so it is attention-grabbing to see from College’s standpoint and HCA, if that they had a cross to attempt to compete on that degree. It appears like they mentioned that, “We’ll look to promote a few of these belongings as a result of we do not see a means ahead the place we may probably be prime two out there.” Simply one other notice, once we have a look at Medicare value studies, they’re self-audited so it may be a bit of difficult sometimes. An accounting agency audits these quarterly studies, however these aren’t as granular in terms of the information. You will have sure metrics within the Medicare value studies like provide prices, per adjustment affected person day, and full time staff, the typical occupied mattress.

It is attention-grabbing, however on the identical time these are self-reported by the hospitals and so they do not embrace issues like doctor teams, they do not have a look at it like a holistic image throughout the system. We had been some Well being Care Price Institute information, and that ranked Atlanta as one of the crucial aggressive acute care markets within the nation. They had been rating 108th least concentrated out of 124 markets. They use this HHI index to strive to determine if there’s enough competitors.

I reached out to the Legal professional Common final week and so they mentioned that they won’t be reviewing HCA’s sale of the 4 hospitals to Piedmont. They solely have a look at offers which might be altering fingers from a not-for-profit to a different not-for-profit or do it for a for-profit entity. I believed that was attention-grabbing simply when it comes to the regulatory side. It appears like probably because it wasn’t already a extremely concentrated market, I am undecided this may increase the flag of any possibly federal regulators.

Tara Bannow: Yeah, that is proper. I do not foresee Piedmont or HCA working into any points right here with closing these offers. This can be a actually concentrated market. Not solely is there Piedmont, Emory, WellStar, competing out there, there’s Northside Hospital system, which is a 5 hospital system additionally based mostly in Atlanta. They acquired Gwinnett Well being System in 2019. Emory Healthcare has 11 hospitals, so that they’re simply as massive as Piedmont. They acquired DeKalb Medical, which has three hospitals, in 2018. On the anti-trust entrance, I talked to a lawyer who used to work for the FTC in regards to the Atlanta market. One factor he mentioned was that city and suburban areas like this are fairly tough for the company to problem.

He pointed to the truth that the company misplaced its preliminary problem of the proposed Advocate Well being, NorthShore College merger. They later gained on enchantment, however then the FTC just lately misplaced the Jefferson Einstein case involving hospitals round Philadelphia. So yeah, it appears like on the federal degree, there may not be an excessive amount of and clearly on the state degree, the College Well being deal is the one one which Georgia’s Legal professional Common will evaluation as a result of it includes the sale of not-for-profit services. As you mentioned, the AG’s workplace isn’t … they do not have purview over the sale of for-profit services, so these HCA gross sales will not get state evaluation.

Alex Kacik: Simply attempting to gauge too on M$A expectations, we have seen it fall off throughout 2020 and we’re listening to that there is some pent-up demand for some offers, significantly the smaller hospitals that have not fared as effectively by way of the pandemic. On the identical time, we’re seeing payments transfer by way of Congress which might be attempting to bolster the budgets of the FTC and DOJ in terms of their oversight. Additionally, there’s some state payments like one in California that modifications the brink that will set off an investigation and in addition simply typically tightens up a few of that regulatory scrutiny.

It is attention-grabbing to see these competing elements right here and what’s going to play out for the hospital area in terms of mergers and acquisitions. I am questioning what you’ve got been listening to when it comes to the anticipated exercise going ahead.

Tara Bannow: A number of the M&A trackers have proven that healthcare offers went down at first of 2021 simply as they had been in 2020, nevertheless it looks as if many of the expectations is that these offers will speed up by way of the remainder of 2021 and into 2022. Hospitals as we all know, they speak so much about efficiencies and decreasing prices. The proof there may be fairly restricted, however the motivation actually behind these mergers appears to be extra about getting greater, gaining leverage over well being insurers, after which demanding larger charges. You possibly can see why that is a gorgeous factor for well being methods to strive to do that 12 months.

Alex Kacik: Certain. To that time too, I have been … engaged on a narrative, offers which have been previously unwound, so mergers which have been consummated after which they’ve both filed a lawsuit to separate from their dad or mum or discovered one thing out of court docket. We have been 4 or 5 completely different offers the place they’re unwinding their mergers and we have famous that revenues had gone up at a fairly constant tempo post-merger however bills had normally outpaced that income development. If you’re these, quote unquote, “efficiencies,” typically if they do not do the right integration course of you continue to have a number of executives and managers overseeing sure departments. You do not renegotiate a few of these provide contracts, possibly the market share is unfold out so you are not getting that leverage with the insurers that you simply anticipated, which may additionally dampen these potential income positive aspects.

It is attention-grabbing to see why … within the outset, why these offers are consummated after which what can go improper, and why a few of these previously unwind. You even have government bonuses that come into play I do know you’ve got checked out, however what are you noticing when it comes to a few of the incentives which might be driving consolidation and whether or not or not these efficiencies have been met?

Tara Bannow: I believe that is all very true, however I believe the incentives for stepping into these offers are going to be intensified proper now, following the pandemic as a result of these stressors that hospitals are underneath are simply actually accelerated proper now.

Alex Kacik: To your level, scale helped a variety of methods throughout this time after they needed to shuffle PPE, and physicians, and different labor backwards and forwards between hospitals to regulate to demand. I will be to see how a lot of a method from a defensive standpoint, they will take up a few of these M&A offers to attempt to insulate themselves from future pandemics or different emergency situations. However on the identical time, we would see extra scrutiny from the state and federal traces.

Tara Bannow: Yeah, and there is nonetheless a variety of CARES Act grants floating round and further liquidity from the Medicare accelerated funds. I believe that is giving a variety of, particularly the for-profits a lift and so they may be seeking to do some extra acquisitions proper now, particularly of those weaker methods which have gotten much more so through the pandemic.

Alex Kacik: Nice. Tara, thanks a lot for taking the time. I respect your sharing your time and perception with us.

Tara Bannow: Thanks. It has been enjoyable.

Alex Kacik: All proper. Thanks all for listening. If you would like to subscribe and help our work, there is a hyperlink within the present notes. You possibly can subscribe to Past the Byline wherever you take heed to your podcasts, and you’ll keep linked with our work by following Tara and I and Fashionable Healthcare on Twitter and LinkedIn. We respect your help.

Source link