Nursing homes, hospices, other businesses sold as hospitals refocus

Hospital systems are returning to their roots as they look to cut costs and simplify operations. 

Over the past two decades, many health systems have acquired long-term care, rehabilitation, home health, nursing home and hospice businesses, seeking to keep patients within their system. Owning these services allowed providers to generate extra revenue while closely overseeing care transitions and quality.

Related: Transitions to post-acute care are getting more challenging

But since the onset of the COVID-19 pandemic, an increasing number of hospital operators have divested long-term care, skilled nursing and other businesses as labor and supplies costs have surged and regulators crack down on post-acute providers. While there is a cyclical ebb and flow to health system acquisition and divestitures, the latest spate of sales may indicate that leadership is shifting from an ownership to partnership model.

“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.

“It’s not just about the price,” he said. “Certain aspects of healthcare have evolved into something that doesn’t make sense for us to do anymore. You might have a whole other team that manages the legal and administrative support because some sectors are so different. All that can take away from the work you are doing in your core business.”

Managing compliance and evolving regulations can also prove too burdensome. For instance, a federal minimum staffing mandate looms over the skilled nursing sector, potentially requiring nursing homes to increase the number of nurses and certified nursing assistants on staff or reduce occupancy. In addition, the federal government last year implemented stricter regulations and quality standards for underperforming nursing homes.

“Healthcare is a team sport, and I think partnerships are more important now than ever,” Yehia said. “We are constantly evaluating what we bring to the table that enhances patients’ well-being versus what can partners bring to the table.”

The heightened period of health system divestitures will likely continue over the next year or two, said Kevin Holloran, senior director at Fitch Ratings, a credit ratings agency. Health systems can use the sales as a financial buffer against high labor costs, and other financial headwinds, he said.

But absent a financial return, health systems may just want to simplify their operations, said Holloran, calling it "addition through subtraction."

“There’s more of a willingness to outsource or partner than we have seen in the past,” he said. “I think the sentiment in the boardroom is that we don’t have to own everything ourselves.”