“We don’t need to own certain elements of the care continuum that aren’t part of our core business,” said Robert Garrett, CEO of Edison, New Jersey-based Hackensack Meridian Health. “We will continue to look for joint venture opportunities—sharing risk and gaining the expertise of a partner makes good operational sense.”
Last year, Hackensack sold 11 of its 14 long-term care facilities to Complete Care, which agreed to a shared governance model where both organizations are represented on a quality compliance board. Hackensack, which also sold its ownership stake in several fitness centers in 2020, plans to complete the sale of two additional long-term care facilities to Complete Care this fall. Hackensack's long-term care facilities were running at a roughly $80 million loss, Garrett said.
The sales were part of a initiative begun in May 2020 to improve Hackensack's finances by $750 million over three years. Hackensack, which also consolidated some behavioral health services and downsized its administrative real estate footprint, exceeded its target in June this year when it hit the $1.3 billion mark, Garrett said. “There is still more to be done,” he said.
Excluding COVID-19 relief funds, Hackensack recorded a $428.4 million operating loss in 2020. The health system reported $97.5 million of operating income in 2022.
Toledo, Ohio-based ProMedica, Philadelphia, Pennsylvania-based Jefferson Health and Cincinnati, Ohio-based Bon Secours Mercy Health have shed some inpatient-adjacent businesses over the past year as well.
In February, ProMedica signed a definitive agreement to sell its Heartland home health and hospice service line to Gentiva, a private equity-backed hospice provider, in a deal valued at $710 million, as reported by Bloomberg. The transaction, expected to close later this year pending customary regulatory approvals, followed ProMedica’s 2022 sale of 147 skilled nursing facilities to Welltower and Integra Health. A ProMedica spokesperson declined comment since the sale is pending.
A recent uptick has occurred in deals between health systems and private equity firms, which are rolling up national networks of post-acute providers, ambulatory surgery centers, urgent care centers and imaging facilities, said David Morlock, managing director and head of health systems M&A at Cain Brothers, an investment bank.
Bon Secours Mercy, for instance, in December 2021 sold two skilled nursing and two assisted living facilities in the Norfolk, Virginia, area to a private equity investor based in New Jersey. The financial terms were not disclosed.
“Historically, hospital executives want to control all parts of the care continuum, even though they may not be great at running them,” Morlock said. “But the capital investment and resource drain managing all those verticals is too much, so health systems are selling to private equity firms or PE-backed companies and bringing in some capital.”
Some health systems may be reluctant to sell a facility to a private equity firm. Private equity firms, which seek a three- to five-year return on investment and often buy in bulk, typically do not have the same philosophy as hospital operators and may be less willing to share oversight.
Still, there are many interested buyers outside of the private equity space. Jefferson Health in July sold a skilled nursing and rehabilitation facility in Washington Township, New Jersey, to Allaire Health Services, a privately held residential, long-term care, skilled nursing and rehabilitation provider. Also last month, the nonprofit health system sold part of its lab services to LabCorp. The financial terms of the deals were not disclosed.
Neither transaction was primarily a financial play, said Dr. Baligh Yehia, Jefferson's president.