tag:blogger.com,1999:blog-32053362.post878984831878885906..comments2024-03-26T00:25:34.026-04:00Comments on Not Running a Hospital: I was not skeptical enoughPaul Levyhttp://www.blogger.com/profile/17065446378970179507noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-32053362.post-87165741531410300672011-04-27T07:33:18.511-04:002011-04-27T07:33:18.511-04:00There are lots of angles to this question. First, ...There are lots of angles to this question. First, profit margins at for-profit and non-profit hospitals may be similar across the board (is this in the slides?), but that may not be true for hospitals while they're held by private equity owners. PE firms are pretty good at cutting costs, and sometimes even growing revenue, so they may be able to raise margins which then are or maybe aren't sustained by later owners.<br /><br />Second, PE owners have ways of goosing their returns apart from after-tax margins. If they get a sale for a higher multiple, that can create a great return without improving margins. PE firms are also notorious for giving themselves huge cash dividends paid for by debt while owning a company. Rather than a recapitalization, it's more like a de-capitalization.<br /><br />In the end, it's a very mixed bag. PE owners can turn around struggling hospitals, but they can just as easily incur a huge debt load that weighs down the hospital. Often at the same time. At the same time, non-profit boards can also be good or bad.Greghttps://www.blogger.com/profile/11625686639473177247noreply@blogger.comtag:blogger.com,1999:blog-32053362.post-9454434547611404532011-02-15T16:28:38.921-05:002011-02-15T16:28:38.921-05:00Paul, I once had the CEO in a non-profit health ca...Paul, I once had the CEO in a non-profit health care organization lambast me and my colleagues for "not making money" like those guys in for-profit health care do. He asked: why can they do it. This was just prior to the Columbia HCA and Tenet revelations, followed by some nasty stuff in pharma and medical device firms. My response: It's easy when you cheat.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-32053362.post-24178653344252289312011-02-14T05:23:54.552-05:002011-02-14T05:23:54.552-05:00Paul –
Actually, I’m not a big fan of private equ...Paul –<br /><br />Actually, I’m not a big fan of private equity, especially when the approach is to improve profits by stripping assets, lots of layoffs and sharply increasing debt. If a struggling hospital can improve its market and cost position with new management, forming an ACO through strategic alliances with other hospitals or modernizing at low cost, if I were in their shoes, I would opt for one of those approaches too. All I’m saying is that if the alternative to private equity capital is closing altogether, it’s probably the best option available.Barry Carolnoreply@blogger.comtag:blogger.com,1999:blog-32053362.post-84880760098185208422011-02-14T05:08:53.851-05:002011-02-14T05:08:53.851-05:00Quite frankly, I agree with Paul's last paragr...Quite frankly, I agree with Paul's last paragraph, and the hospital system I worked for was a poster child (commenting on which is the primary reason I have always commented anonymously).Despite being in a sophisticated metropolitan area with potential access to good Board talent and good competitive attributes such as location; over time it made a series of dumb decisions, sprinkled in with one unscrupulous CEO/CFO combo who manipulated the board into a huge(8 mil) golden parachute, which came close to sinking a longstanding and respected community hospital system. To this day the financial consequences are hampering it despite better management.<br />At such times, selling to PE seems like an obvious lifeline. There are for-profit health care companies in it for the long run (HCA for example) which, despite growing pains of their own, are successful. I believe Paul's post is about those recent-entry short term players looking for a quick profit on distressed hospitals by flipping - a clear and present danger in the current environment as exemplified by this webinar.<br /><br />nonlocal MDAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-32053362.post-53051598761159610112011-02-13T22:16:09.096-05:002011-02-13T22:16:09.096-05:00Barry,
Do you see any difference between private ...Barry,<br /><br />Do you see any difference between private equity with a short-term view and plan to flip a property, and another type of private investment entity with a long-term view?<br /><br />BTW, it is also not clear that the "massive capital investments" discussed by the panelists are indeed "massive." Strategic alliances among a number of non-profits to create ACOs are quite possible. Each brings something to the party.<br /><br />Finally, it is not clear that all non-profits' difficulty in raising capital stem from their being non-profits. Such problems can arise from the particular management team in place. A diligent Board can recognize that and make changes that result in a much healthier organization.Paul Levyhttps://www.blogger.com/profile/17065446378970179507noreply@blogger.comtag:blogger.com,1999:blog-32053362.post-52580970271179640402011-02-13T21:53:01.745-05:002011-02-13T21:53:01.745-05:00If a non-profit hospital considers selling itself ...If a non-profit hospital considers selling itself to a private equity firm because it needs capital to modernize and/or pay for expensive HIT upgrades, what’s the alternative if it can’t access capital itself and it’s not forthcoming from state, county or city subsidies? Under those circumstances, it is likely to continue to lose ground competitively and ultimately need to close or at least significantly downsize. If a private equity firm buys it, invests capital to upgrade the facilities, strengthen the pension fund, etc. but ultimately can’t make the investment pay off, it may have to close the hospital. If it can make it work by, for example, building an efficient, high quality ACO that can provide care at lower cost than its competitors, the local healthcare system is well served, it would seem. The bottom line is that if the non-profit can’t make it on its own because it can’t access capital, selling out to a private equity firm or a for profit hospital system doesn’t seem like such a bad alternative. One underlying assumption I make is that no local financially strong non-profit hospital system would want to buy its weaker competitor if it is likely to close sooner rather than later if left on its own.Barry Carolnoreply@blogger.com