Curae Health is seeing dollar signs in rural hospitals that are struggling with falling reimbursement and are being sold by for-profit chains.
Clinton, Tenn.-based Curae is set to more than double in size after it acquires four hospitals that CHS is selling to reduce debt.
In a field dominated by for-profit hospital aggregators, Curae is one of the rare not-for-profit chains in buying mode. CEO Steve Clapp said Curae looked at more than 50 rural hospitals in the past year before settling on the CHS hospitals.
“We're creating a little niche,” he added.
By year end, Curae expects to complete the CHS deal which includes three hospitals in Mississippi and one in Florida. They are 95-bed Merit Health Gilmore Memorial in Amory, Miss.; 112-bed Merit Health Batesville in Batesville, Miss.; 181-bed Merit Health Northwest Mississippi in Clarksdale, Miss.; and 126-bed Highlands Regional Medical Center in Sebring, Fla.
All four hospitals were acquired by CHS in 2014 as part of its $7.6 billion purchase of Health Management Associates, a rural hospital system that has been difficult for CHS to absorb.
Now CHS is selling hospitals – maybe as many as 17 yet this year – to cull those that aren't in core markets and to try to reduce a crushing debt of $15 billion.
Clapp said the CHS hospitals it's acquiring will be core to Curae, which now owns and operates a total of three hospitals, all in Alabama, that were acquired since its inception in 2014.
He said the company is studying the capital needs of the acquisitions to see what service lines can be expanded, physicians recruited and information technology implemented to help them operate more efficiently.
Big for-profit chains like CHS nowadays are selling these hospitals because, even if they are profitable, they can't generate the margins that shareholders demand, said Pete Lawson, Curae executive vice president of development.
Lawson was an executive VP at HMA and left in 2014 after CHS bought the 70-hospital chain.
Rural hospitals are struggling with falling reimbursement and aging populations, Lawson said. And they need capital to cope with the reimbursement push away from fee-for-service to value-based care.
Some are merging with larger not-for-profits systems to survive. Others are concerned that big not-for-profit systems are largely interested in picking up tertiary referrals rather than trying to optimize the volumes of the rural hospitals, Lawson said.
Curae's plan to grow the rural hospitals where they stand may be attractive to some, said Trey Crabb, head of Morgan Stanley's not-for-profit hospital M&A practice.
“Over the past seven or eight years, hospitals with $75 million or less in net patient revenue have had limited choices in partners as large consolidators have continued to move upstream, away from communities where these hospitals have been for many years,” Crabb said.
Clapp said some of its hospitals in Alabama are close enough to those being acquired from CHS in Mississippi that they can look to share services. For example, a specialty physicians who might not get enough business at a single rural hospital possibly would consider locating somewhere between the hospitals if he or she could split time between each market.