A two-hospital system in Ohio has come up with a unique way to pay for its new electronic medical record system: Selling the leasing rights to its non-hospital properties.
The Genesis HealthCare System, created in 1997 as an affiliation between the Bethesda Care System and Good Samaritan Medical Center, announced on Tuesday that it had sold more than $20 million in medical office space to Nationwide Health Properties, Inc., a real estate investment trust that invests primarily in U.S. healthcare real estate.
The yearlong deal, involving 13 buildings that house outpatient services, administrative offices and physician practices, is part of the Zanesville, Ohio-based not-for-profit health system’s planned asset reallocation. According to company officials, the money made on the deal will help complete the system’s conversion from paper medical records to an electronic medical record – a project in which the health system has already invested $25 million.
“Over the years, Genesis has built or purchased medical office buildings to house physicians or to provide outpatient services that would be more convenient and less costly for the community if they were not provided in the hospital buildings,” said Paul Masterson, the health system’s chief financial officer, in an interview with the Zanesville Times Recorder. “Providing healthcare services is our core business, and we must continually invest in state-of-the-art technology, facility and service enhancements to meet community need.”
“Our real estate holdings were assets that could create considerable cash flow for our growth-oriented development plans, so we decided to get out of the real estate business by selling the buildings and investing the money received in our mission-critical initiatives,” he added.
Last June, Genesis sold off its long-term care businesses, Genesis Extended Care & Rehab in Zanesville and Genesis Health & Rehab in McConnelsville, to Trilogy Health Services. Company officials said then that the sale was part of the health system’s planned strategic growth initiatives, with proceeds being used for facility upgrades, IT enhancements and patient care equipment.
Incorporated in 1985, Nationwide is based in Newport Beach, Calif., and manages almost $5 billion in healthcare real estate, consisting of 636 properties in 43 states.
Masterson said the deal with Nationwide consists primarily of a transfer of paperwork, with Genesis paying off roughly $13 million in associated debt and receiving about $20 million for the properties. Another building, he said, is due to be sold shortly.
Masterson said the buildings’ occupants and uses wouldn’t change, and patients wouldn’t notice any difference. And while the proceeds can be used for almost any purpose, he said, the money will be used specifically on technology.
“It’s very difficult to finance the medical records with traditional financing through a bank, because banks like collateral – they like real estate, equipment, something,” he told the Times Recorder. “What this does is creates an alternative financing mechanism for us and brings in dollars.”
He said the buildings were sold to be leased, so that the health system retains ownership of the properties while selling off the rent stream.
“We wanted to retain control of the real estate yet be able to drive the capital out of the building,” he said. “They basically bought a rent stream. They own the buildings, and there’s certain restrictions of what they can and can’t do. They can’t turn it into a fast-food place or a strip mall; it’s primarily for medical buildings.”