By Melanie Evans
Some of the hospital industry's most active investing these days
is happening outside the hospital.
Giant U.S. hospital operators, including Tenet Healthcare Corp.,
Dignity Health and HCA Healthcare Inc., are investing heavily in
surgery centers, emergency rooms and urgent care clinics located
outside hospitals, chasing after patients who increasingly want
cheaper and more convenient care.
Insurers and employers that pay for health care are helping
drive the change as they shift more Americans to high-deductible
insurance plans, which require patients to pay more of their
medical bills before insurance kicks in. That has pushed more
patients to seek lower-cost options, says RBC Capital Markets
managing director Frank Morgan, a hospital analyst.
Hospital demand slumped during the last recession, a trend that
has continued even as the economy recovers, American Hospital
Association data through 2014 show. Admissions growth at HCA
hospitals has slowed in recent quarters to 1% to 2%, as a boost
from the Affordable Care Act faded, while Tenet's admissions have
been flat or down 1% to 3% most quarters since late 2015.
In an effort to strengthen their hold on their markets and
prevent rivals from siphoning off patients, hospitals are investing
outside their own walls. They are "following the patient," Mr.
Morgan said.
The strategy also places hospital satellites closer to where
patients live and work, which executives say they hope will win
over new, loyal customers.
In July, Ashley Hammack rushed to a new free-standing ER in
Spring Hill, Tenn., after growing weak from vomiting. The facility,
a satellite of TriStar Centennial Medical Center, is a 10 minute
drive from her home, about 20 minutes closer than the hospital
where she delivered her daughter five months before.
Doctors saw her quickly. "I never even sat down," Ms. Hammack
recalled. She was treated for severe dehydration from what doctors
suspected was food poisoning and sent home with medication.
Trevor Fetter, Tenet's outgoing chief executive, says company
executives have pursued rapid outpatient expansion partially out of
necessity. Slumping admissions contributed to Tenet and HCA
lowering their earnings estimates for 2017, which in turn hit stock
prices.
It's unclear how the shift to out-of-hospital care will affect
long-term earnings. Non-hospital operations typically generate
lower revenue than hospitals but produce higher profit and require
less capital to build and run.
But "it's happening anyway," Mr. Fetter said. "Somebody else is
going to do it to us if we don't do it ourselves."
Prices for common surgical care can be sharply lower outside of
hospitals, which generally have higher overhead related to
round-the-clock operations and the technology and specialists
needed to treat more complex cases.
Cataract surgery and knee arthroscopy prices at ambulatory
surgery centers were $5,000 to $2,500 less than at hospitals for
employees and retirees with health insurance provided by the
California Public Employees' Retirement System, according to
researchers at the University of California, Berkeley. Calpers
changed its benefits five years ago to nudge patients toward the
cheaper ambulatory option, a spokesman said, and will expand its
plan to include a dozen more surgeries starting in January.
Tenet Healthcare, which operates 77 hospitals, is expected to
spend up to $1.9 billion through 2020 to complete the buyout of
private-equity-backed United Surgical Partners International, an
operator of ambulatory surgery centers. The company acquired
slightly more than half of USPI in 2015 and agreed to buy the rest
over five years. Tenet said it would spend an additional $100
million to $150 million annually on other free-standing surgery
centers, emergency rooms and satellite locations.
Business from outside hospitals accounted for 28% of Tenet's
earnings before interest, taxes, depreciation and amortization as
of August, up from 5% in 2014. That business could be spun off or
sold under pressure from an activist investor that is Tenet's
largest institutional shareholder, according to analysts.
Dignity Health, a nonprofit based in San Francisco, owns
hospitals in three states. After a string of joint ventures and a
2012 acquisition, it also now operates more than 280 free-standing
emergency rooms, urgent care and workplace clinics and so-called
microhospitals, which have emergency rooms, fewer beds and more
limited technology.
Peggy Sanborn, vice president of strategic growth, mergers and
acquisitions for Dignity Health, said joint-replacement surgery
outside a hospital seemed impossible a decade ago. Now, aided by
technology that has improved implants and made procedures less
invasive, Dignity Health is able to replace hips and knees outside
the hospital in limited cases, she said. Patients who receive the
outpatient procedures are relatively healthy and at low risk for
complications.
HCA, the largest publicly traded U.S. hospital company with 172
hospitals, says it will operate 120 free-standing urgent care
centers by the end of the year, an increase of 40% from two years
ago. The Nashville-based firm has doubled the number of
free-standing emergency rooms it operates since 2015 to 64, and
expects to increase that number to 80 by early next year.
HCA plans to spend $3 billion on expansion this year, including
on new satellite locations, according to Chairman and Chief
Executive Milton Johnson.
Some hospital executives tout outpatient growth as a strategy to
win market share for hospitals. Patients who seek care at a
neighborhood retail clinic may choose a hospital owned by the same
company, they say. Employers and insurance companies may also
prefer hospital operators with an expansive outpatient network.
HCA's hospital market share in Nashville grew to 35% from about
32% over the past five years as the company added three ambulatory
surgery centers, four free-standing emergency rooms and 10 urgent
care centers to the market. HCA also invested in its hospitals
during that period.
Patients' drift away from hospitals has focused executives'
attention on what hospitals should look like in the future.
Tenet is studying which services "over the next 10 to 20 years
will stay in the hospital," Eric Evans, president of hospital
operations for Tenet, told analysts on a conference call last
month. For now, that includes trauma care and neurosurgery.
"Technology continues to open the door for more things to be
done on an outpatient basis," Mr. Evans said. "Our goal is, as
technology moves, is to be location-agnostic."
(END) Dow Jones Newswires
September 25, 2017 05:44 ET (09:44 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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