Investors look outside hospital campus for opportunities
Healthcare ventures outside the hospital walls appear to be the favored target of investors looking for new opportunities, financial specialists say. Driving that interest is a vision of community-based care sites through accountable care organizations, healthcare reform, evolving private pay models and an industry-wide initiative to bring down costs.
The healthcare landscape is changing and post-acute care is emerging as the dominant venue for services. For investors in new projects that means facilities outside the traditional hospital campus, said Bob DeLuca, managing partner in charge of Chadds Ford, Pa.-based IMA Consulting's finance practice.
"On a grand scale everything is migrating to post-acute care," he said. "They are smaller projects and while you may not be able to do everything, you can do it in stages and prioritize what the most mission critical projects are."
Bariatric surgery and sleep therapy centers are two post-acute ventures that have attracted a lot of investor interest, DeLuca said.
Yet the mainframe hospital hasn't been abandoned just yet, he added. Instead, it is getting a makeover designed to attract a more discriminating clientele.
"We're seeing a movement toward building new private rooms with a hotel atmosphere," he said.
Hospitals are also focusing on being recognized as a Center of Excellence, DeLuca said, earning them a federal government-endorsed reputation for high-quality clinical, research, technology and operations.
"Centers of Excellence are a hot trend," he said. "It gives hospitals a marketing advantage and makes them more attractive to insurers and patients in a competitive environment."
Urgent care eyed
Scott Perricelli, partner at Philadelphia-based LLR Partners, is fixated on alternate site properties as the wave of the future. In his view, it is imperative that services be moved away from the acute care setting in order to rein in escalating healthcare costs.
"The percentage of GDP our economy spends on healthcare is unsustainable," he said. "There are a lot of opportunities for companies that provide better care at cheaper costs and we are focused on those areas."
Urgent care centers, along with outpatient surgery, dialysis and post-surgical rehabilitation are demonstrating cost effectiveness and represent a new care model for the industry.
"We just invested in a chain of urgent care clinics," said Perricelli. "What they can do in a visit for $100 costs $1,000 in the ER. Their core services are enabling our healthcare system to become better, more efficient and cost effective."
Suitable for minor injuries and illnesses, urgent care centers can handle these cases without the infrastructure and overhead of a large hospital, said Perricelli.
"There is a lot of ER business that can be diverted to urgent care," he said. "But it comes down to the right setting for the right type of care you're providing."
The acuity factor
The ACO movement is creating a new healthcare environment that includes a changing profile of patients. As hospitals increasingly discharge patients into post-acute care sites, it is causing an evolution in the long-term care and senior living sectors, said Bob Kramer, president of the National Investment Center for the Seniors Housing & Care Industry.
"The reality is that the skilled nursing unit of today is the old med/surg unit of the hospital 10 years ago," he said. "Likewise, the assisted living building of today is the skilled nursing building of 10 years ago, with residents being older and frailer. Some would also say that the independent living model of today is the assisted living model of 10 years ago."
With real estate investment trusts, private equity firms and regional banks all actively investing in the marketplace, their preferences are leaning toward higher acuity private pay services, Kramer said - especially assisted living with memory care. High acuity specialty services for ventilation, stroke and bariatric patients also have a lot of potential, he said, though "you must have enough mass to support it."
Doug Korey, managing director for Shrewsbury, N.J.-based Contemporary Healthcare Capital acknowledges that "there is a remarkable interest among a number of operators, lenders and investors for standalone memory care facilities. For a number of these groups, this is the new generation of specialty senior housing facilities."
However, Korey cautions that a similar enthusiasm for the then-new assisted living model in the mid-1990s led to overbuilding and market saturation that caused economic depression in the seniors housing marketplace by the turn of the century.
"That potential exists for this type of facility as well," he said.
Although the need-driven services of skilled nursing have traditionally been attractive, reimbursement cuts from Medicare and Medicaid have dampened some enthusiasm for that sector, Kramer said. For skilled nursing operators to boost their image with investors, he suggested that they partner with a hospital as part of an ACO.