This document discusses trends in health systems and physician-owned real estate monetization. It notes that prior to 1997, most hospitals owned their facilities under cost-based reimbursement, but regulatory changes in the 1980s-1990s incentivized monetizing "non-core" properties to redeploy capital. Between 1997-2008, major health systems monetized billions in medical office buildings. Additionally, concerns over physician self-referral laws led health systems to remove themselves as landlords to referring physicians. The emergence of institutional investors coincided with these regulatory changes, and transaction volume grew steadily through 2008. However, demand for capital to fund new facilities and programs is increasing demand for third-party capital through real estate monet
PYA Principal Carol Carden presented on current issues in healthcare valuation at The Texas Society of Certified Public Accountants Business Valuation, Forensic, and Litigation Services Conference at the Hilton Fort Worth, October 14, 2014.
PYA Principal Jim Lloyd was among the faculty who spoke at the 2013 Mid-South Commercial Law Institute during a panel discussion on “Healthcare Facilities in Bankruptcy.” The presentation provided an overview of healthcare facilities and key issues, healthcare regulatory environment, valuation of healthcare facilities, and red flags for healthcare businesses in bankruptcy or distress.
Presentation Offers Valuation Strategies for Tax-Effective Practice TransactionsPYA, P.C.
PYA Principal Jim Lloyd co-presented a session at the 2013 AICPA Healthcare Industry Conference in New Orleans on “Valuation Strategies for More Tax-Effective Physician/Dentist Practice Transactions.”
This presentation was given by Chris Carnahan on October 26, 2016 at the National Association of Certified Valuators and Analysts (NACVA) and the Consultants' Training Institute's (CTI) Exit Planning, Mergers and Acquisitions, and Transaction Advisory Services Conference. This piece discusses the valuation of a practice when a physician leaves. It will cover fair market valuation regulations, trends and marketplace data, as well as the Income, Market, and Asset Approach.
Chris Carnahan, President of Carnahan Group, presented at the National Association of Certified Valuators and Analysts' (NACVA) Advanced Valuation: Applications and Models Workshop on December 6, 2016. The presentation covers valuing physician practices; specifically,fair market valuations (FMVs) in healthcare, the government regulations surrounding FMVs, the current trends and marketplace, as well as valuing physician compensation.
PYA Principal Carol Carden presented on current issues in healthcare valuation at The Texas Society of Certified Public Accountants Business Valuation, Forensic, and Litigation Services Conference at the Hilton Fort Worth, October 14, 2014.
PYA Principal Jim Lloyd was among the faculty who spoke at the 2013 Mid-South Commercial Law Institute during a panel discussion on “Healthcare Facilities in Bankruptcy.” The presentation provided an overview of healthcare facilities and key issues, healthcare regulatory environment, valuation of healthcare facilities, and red flags for healthcare businesses in bankruptcy or distress.
Presentation Offers Valuation Strategies for Tax-Effective Practice TransactionsPYA, P.C.
PYA Principal Jim Lloyd co-presented a session at the 2013 AICPA Healthcare Industry Conference in New Orleans on “Valuation Strategies for More Tax-Effective Physician/Dentist Practice Transactions.”
This presentation was given by Chris Carnahan on October 26, 2016 at the National Association of Certified Valuators and Analysts (NACVA) and the Consultants' Training Institute's (CTI) Exit Planning, Mergers and Acquisitions, and Transaction Advisory Services Conference. This piece discusses the valuation of a practice when a physician leaves. It will cover fair market valuation regulations, trends and marketplace data, as well as the Income, Market, and Asset Approach.
Chris Carnahan, President of Carnahan Group, presented at the National Association of Certified Valuators and Analysts' (NACVA) Advanced Valuation: Applications and Models Workshop on December 6, 2016. The presentation covers valuing physician practices; specifically,fair market valuations (FMVs) in healthcare, the government regulations surrounding FMVs, the current trends and marketplace, as well as valuing physician compensation.
Consumer-Centric Healthcare: 2015--The Tipping Point Has Arrived (Report by William Blair)
Consumers—in tandem with disruptive healthcare technology and healthcare services providers—are the key to solving many of US healthcare's woes, particularly the unsustainably high cost of care.
Public exchanges, private exchanges, and high-deductible health plans are growing quickly. Disruptive forces of competition will create a lower-cost system that promotes the growth of highly efficient, low-cost, and high-quality providers and technologies.
The continued movement of financial and quality risk back to providers (and increasingly to consumers themselves) is encouraging providers and consumers to seek preventive medicine, cost efficiency, clinical efficacy, and overall value in healthcare. In turn, this could drive significant change regarding the primary point of care delivery (rapidly moving outside the hospital), the overall cost of healthcare and investment decisions made by healthcare providers.
Consumer-centric healthcare providers will experience strong top- and bottom-line growth over the coming years. Investors in both the public and private-equity markets will achieve superior long-term returns by identifying and investing in these companies.
Commercial reasonableness in_exempt_hospital_transactions_annotated_4.28.2014Robert James Cimasi
This was from a presentation given to one of the ASA Chapters titled, "Commercial Reasonableness in Exempt Hospital Transactions: Hurdling the Analytical Thresholds". The presentation covers healthcare specific topics around: fair market value; commercial reasonableness; fraud and abuse enforcement; and, relevant case law.
Critical issues in hospital and health system m&a fall 2014Rex James Burgdorfer
Since the enactment of the Affordable Care Act, the pace of hospital and health system consolidation has accelerated to a level not seen since the late 1990s, when hospitals were reacting to the formation of HMOs. The year 2013 saw a total of 87 consolidation transactions, following 105 in 2012. This volume represents a significant increase over 58, the median number of transactions completed each year between 2001 and 2011. Unlike the last wave of consolidation, which was driven primarily by financial and reimbursement considerations, today’s hospital mergers are just as likely to be between financially strong partners as they are to be in response to challenged operations or economics. Hospital companies increasingly are turning to mergers and acquisitions as a tool to improve quality, manage risk, access capital and contend with the changing regulatory environment. The articles in this collection explore the drivers of the current wave of consolidation, address the causes of transaction failures and review the range of structural alternatives available in the marketplace.
Healthcare reform: Five trends to watch as the Affordable Care Act turns fivePwC
In its first five years, the Affordable Care Act (ACA) has had a profound, and likely irreversible, impact on the business of healthcare. Industry leaders must rethink strategies to remain relevant in a post-ACA world.
Web Page: http://www.pwc.com/us/acahealthreform
Ontario and U.S. Programs offer different approaches to help fund innovation in medical technology
In this bulletin, we highlight two new government funding incentive programs for private
companies in the biotech / medical-device sectors.
#RegReporting is a tough nut to crack! In his recent blog, Prakash Jalihal writes on why the process has become so complicated and explains how HEXANIKA can streamline Regulatory Reporting for banks using #BigData technology:
As public and private insurers move away from traditional fee-for-service payments, healthcare organizations are struggling to make the leap. Market share, regional characteristics, financial health and an organization’s mission and culture are shaping the path as the flow of money shifts and the skills to manage and measure risk are being redirected in largely untested ways.
Presented by PYA’s Jim Lloyd (Consulting Principal) and Robert Mundy (Consulting Senior Manager), "Valuation of Dental Practices,” provide valuable insights regarding dental practice operations, merger and acquisition activity, and valuation approaches. The presentation also covers:
Key operating statistics that drive the value of dental practices.
Compensation trends for dentists.
Regulatory constraints and related issues.
Consumer-Centric Healthcare: 2015--The Tipping Point Has Arrived (Report by William Blair)
Consumers—in tandem with disruptive healthcare technology and healthcare services providers—are the key to solving many of US healthcare's woes, particularly the unsustainably high cost of care.
Public exchanges, private exchanges, and high-deductible health plans are growing quickly. Disruptive forces of competition will create a lower-cost system that promotes the growth of highly efficient, low-cost, and high-quality providers and technologies.
The continued movement of financial and quality risk back to providers (and increasingly to consumers themselves) is encouraging providers and consumers to seek preventive medicine, cost efficiency, clinical efficacy, and overall value in healthcare. In turn, this could drive significant change regarding the primary point of care delivery (rapidly moving outside the hospital), the overall cost of healthcare and investment decisions made by healthcare providers.
Consumer-centric healthcare providers will experience strong top- and bottom-line growth over the coming years. Investors in both the public and private-equity markets will achieve superior long-term returns by identifying and investing in these companies.
Commercial reasonableness in_exempt_hospital_transactions_annotated_4.28.2014Robert James Cimasi
This was from a presentation given to one of the ASA Chapters titled, "Commercial Reasonableness in Exempt Hospital Transactions: Hurdling the Analytical Thresholds". The presentation covers healthcare specific topics around: fair market value; commercial reasonableness; fraud and abuse enforcement; and, relevant case law.
Critical issues in hospital and health system m&a fall 2014Rex James Burgdorfer
Since the enactment of the Affordable Care Act, the pace of hospital and health system consolidation has accelerated to a level not seen since the late 1990s, when hospitals were reacting to the formation of HMOs. The year 2013 saw a total of 87 consolidation transactions, following 105 in 2012. This volume represents a significant increase over 58, the median number of transactions completed each year between 2001 and 2011. Unlike the last wave of consolidation, which was driven primarily by financial and reimbursement considerations, today’s hospital mergers are just as likely to be between financially strong partners as they are to be in response to challenged operations or economics. Hospital companies increasingly are turning to mergers and acquisitions as a tool to improve quality, manage risk, access capital and contend with the changing regulatory environment. The articles in this collection explore the drivers of the current wave of consolidation, address the causes of transaction failures and review the range of structural alternatives available in the marketplace.
Healthcare reform: Five trends to watch as the Affordable Care Act turns fivePwC
In its first five years, the Affordable Care Act (ACA) has had a profound, and likely irreversible, impact on the business of healthcare. Industry leaders must rethink strategies to remain relevant in a post-ACA world.
Web Page: http://www.pwc.com/us/acahealthreform
Ontario and U.S. Programs offer different approaches to help fund innovation in medical technology
In this bulletin, we highlight two new government funding incentive programs for private
companies in the biotech / medical-device sectors.
#RegReporting is a tough nut to crack! In his recent blog, Prakash Jalihal writes on why the process has become so complicated and explains how HEXANIKA can streamline Regulatory Reporting for banks using #BigData technology:
As public and private insurers move away from traditional fee-for-service payments, healthcare organizations are struggling to make the leap. Market share, regional characteristics, financial health and an organization’s mission and culture are shaping the path as the flow of money shifts and the skills to manage and measure risk are being redirected in largely untested ways.
Presented by PYA’s Jim Lloyd (Consulting Principal) and Robert Mundy (Consulting Senior Manager), "Valuation of Dental Practices,” provide valuable insights regarding dental practice operations, merger and acquisition activity, and valuation approaches. The presentation also covers:
Key operating statistics that drive the value of dental practices.
Compensation trends for dentists.
Regulatory constraints and related issues.
Career Hacking: Episode 1 - Resume HackingLocalWork.com
Rarely do job seekers submit paper copies of their resumes and applications anymore. Electronic submissions are now the norm. Learn the best techniques to prepare your resume to be seen by employers and potentially increase your chances of getting hired.
5 free resume templates | last resume templates you’ll useLocalWork.com
Your resume is your primary marketing piece and your first chance to catch an employer’s attention.
In order to stand out from the other applicants and be among those who are called for an interview, your resume must be well written and well formatted. Use this guide and these templates to create a resume that will make a stellar first impression.
You can read the full blog and view the templates here:
http://www.localwork.com/blog/5-free-resume-templates-last-resume-templates-youll-use
Looking for a great career? Visit LocalWork.com and find a job that suits you.
• •Intensity of service• •Charges for specific procedures.docxanhlodge
• •Intensity of service
• •Charges for specific procedures
(Cleverley 243-254)
Cleverley, William O. Essentials of Health Care Finance, 7th Edition.
Jones & Bartlett Learning, 20101022. VitalBook file.
Chapter 12 Financial Analysis of Alternative
Healthcare Firms
LEARNING OBJECTIVES
After studying this chapter, you should be able to do the following:
• 1.List some of the major nonhospital and nonphysician
sectors of the healthcare industry.
• 2.Discuss the sources of revenue for the nursing home
industry.
Average Case Weight =
36
30
=
1.2
• 3.Discuss the major sources of revenue and expenses of
medical groups.
• 4.List and describe the major organizational types of
physician groups.
• 5.Describe alternative health maintenance organization
arrangements.
REAL-WORLD SCENARIO
Laura Rose has been recently appointed to the Board of ElderCare, a
large, for-profit operator of skilled nursing facilities (SNFs) around the
country. Laura’s first committee assignment is to the Treasury
Committee because of her prior business experience. Although Laura
had extensive experience as a hospital administrator, she had
relatively little familiarity with the SNF industry. Upon reviewing
ElderCare’s recent financial statements, she was concerned about the
dramatically declining financial position. She noticed that revenues
were declining on per facility and per patient bases. Meanwhile, the
company’s debt had been downgraded, and its borrowing costs had
risen substantially.
She is aware that Medicare implemented a SNF prospective payment
system as part of the Balanced Budget Act of 1997. Payment
increases by Medicare and Medicaid have not kept pace with
increases in costs in recent years. She wonders whether this might be
a factor in the company’s financing issues. In general, profitability in
the long-term care industry has declined significantly in recent years,
and several industry leaders had filed for bankruptcy protection.
Although some believe that SNF prospective payment systems were
largely to blame, other factors, such as ill-advised acquisitions,
excessive long-term debt, and poor balance sheets, probably
contributed as well. In essence, she is unsure whether ElderCare’s
financing difficulties are unique to management issues at ElderCare or
whether they reflect more general market conditions and economic
and reimbursement trends.
To understand the issue better, Laura needs to estimate the direct
financial impact of SNF reimbursement. She asked the ElderCare
treasury and controller’s office staff to prepare an analysis of the
financial performance of selected long-term care facilities over the
period 2006 to 2010. In particular, she wants to know how SNF-bond
ratings have been affected by prospective payment systems and what
other factors might have contributed to the industry’s deteriorating
financial performance.
In Chapter 11 we discussed the measures and concepts of financial
analysis in some .
How to Start, Run and Manage a Hospital Successfully by Dr.Mahboob ali khan Phd Healthcare consultant
The purpose of this paper is to give a brief outline of the pre-planning and strategic thinking in which an entrepreneur might consider before investing in or starting up a new hospital in the developing world.
There are numerous examples of hospital startups that were ill-conceived or poorly planned and have resulted in either a hospital that was partially constructed and abandoned or were completed and within two years failed in profitability and now sit idle. Other examples exist of underperforming assets. What went wrong? What could the investors have done to decrease their investment risk and increase the chances of the hospital being successful?Globalization of Healthcare.
Healthcare Financial Transformation: Five Leading StrategiesHealth Catalyst
Healthcare financial transformation—improving care delivery while lowering costs—has been an ongoing challenge for health systems in the era of value-based care and an even more prominent concern amid COVID-19. While better care and reduced expense to organizations and consumers might seem like opposing goals, by understanding the true cost of services and other drivers of expense, organizations can successfully manage costs while maintaining, and even improving, care delivery. To that end, health systems can use data- and analytics-driven tools and strategies to addresses financial challenges, including uncompensated care, prolonged accounts receivable days, discharged not final billed cases, inefficient resource use, and more.
The Healthtech Exits site tracks deals and trends in a vital sector. Our goal is to provide relevant records and tools to serve the health technology sector. We want to be a resource for executives and investors in health technologies companies who are considering their strategic growth and exit options in today’s environment.
Strategic ThinkingExamine how strategic thinking and planning affe.pdfakkucomm
Strategic Thinking
Examine how strategic thinking and planning affect the internal and external environments
specific to Nursing Homes services by completing the following:
Identify and analyze the various elements that comprise your health care industry\'s trends and
policies.
Define and explain the economic and business conditions, premises, policies, and other related
forces that form the basis for generating change in Nursing Homes.
Identify and analyze specific issues revolving around health care management and policy
analysis specific to this organization.
Examine the different types of markets in the health care system and the determinants of supply
and demand in each market specific to the selected organization.
Your two-page report should contain an introduction and a conclusion. Resources and citations
should be formatted according to APA (6th edition) style and formatting.
Solution
1). health care industry\'s trends will exert significant impact on capital investments,allocation of
resources, innovation, and share of industry profits.these extraordinary achievements, the cost,
quality, and accessibility of health care have become major legislative and policy issues.
Substantial increases in the cost of health care have placed considerable stress on federal, state,
and household budgets, as well as the employment-based health insurance system. Health care
quality varies widely, even after controlling for cost, source of payment, and patient preferences.
Many Americans lack health insurance coverage at some point during any given year. The costs
of providing uncompensated care are a substantial burden for many health care providers, other
consumers, and tax payers.
2.the economic and business conditions, premises, policies, and other related forces that form the
basis for generating change in Nursing Homes business or reward suppliers that reduce costs or
enhance quality with substantially increased volume or higher payments. CMS has limited ability
to contract selectively with providers or use competitive bidding. Even straightforward
purchasing initiatives, such as competitive bidding for durable medical equipment (DME), have
generated considerable resistance, despite the success of a pilot project for DME competitive
bidding
3.issues revolving around health care management and policy analysis specific to this
organization
a). Health Care Expenditures Are Once Again Rising Dramatically
B. Health Care Quality Varies
c).Economy Typically Relies on Market Competition
4.different types of markets in the health care system and the determinants of supply and demand
in each market specific to the selected organization.
Competitive pressures for cost containment have spurred the development of new forms of
health care financing and delivery. Government payors have adopted new forms of payments for
health care providers to slow health care inflation. Private payors have adopted systems, such as
managed care and preferred provider organizati.
In the coming years the United States will find themselves going through a number of changes within the Social Security Administration which will affect the Health Care Industry as we know it “Hospital size has long been an area of discussion and debate in the U.S. healthcare industry. Questions have consistently focused on cost management or efficiency in large versus small hospitals. A persistent question among researchers is whether efficiencies are associated with larger facilities through economies of scale, or if there are alternate scenarios that play a significant part in hospital cost and efficiency” (2009, JHM). Since the Affordable Health Care Act was established it made obtaining health care much more affordable and accessible, but at the same time there has to be some cut back.
3Running Head Course Project Final SubmissionChanasha Owens.docxgilbertkpeters11344
3
Running Head: Course Project Final Submission
Chanasha Owens
Accounting & Finance for Healthcare Managers B6501
Argosy University-Sarasota
April 13, 2013
NYU Hospital center is an 879 bed not-for-profit (NFP) hospital in a major city. The hospital competes with other hospitals for its patient base. A world-class, patient-centered, integrated, academic medical center is one of the nation’s premier centers for excellence in clinical care, biomedical research and medical education. Located in the heart of Manhattan, NYU Langone is composed of four hospitals: Tisch Hospital, its flagship acute care facility; the Hospital for Joint Diseases, one of only five hospitals in the nation dedicated to orthopedics and rheumatology; Hassenfeld Pediatric Center, a comprehensive pediatric hospital supporting a full array of children’s health services; and the Rusk Institute of Rehabilitation Medicine, the world’s first university-affiliated facility devoted entirely to rehabilitation medicine--plus NYU School of Medicine, which since 1841 has trained thousands of physicians and scientists who have helped to shape the course of medical history. The medical center’s tri-fold mission to serve, teach and discover is achieved 365 days a year through the seamless integration of a culture devoted to excellence in patient care, education and research.
Net Patient revenue non-Medicare$260,183,000.00
Capitation Revenue$36,829,320.00
Patient Revenue - Medicare Medicaid$188,408,800.00
Unrelated business revenue
Capitation Rev
Other rev - sale of asset$5,492,700.00
Rent revenue$450,000.00
dividends$3,800,000.00
Investment Income$1,892,925.00
Other rev - other$5,290,000.00
Contributions$7,722,580.00
Net assets released from restrictions
Ttl Unrestricted Rev$510,069,325.00
The current ratio of NYU ending 2010 was 1.56 and beginning 2011 was 1.49. There was a slight decrease in the ratio which shows that there were resources they may not have been quite controlled and budgeted.
Revenue Source Amount
Net Patient revenue non-Medicare93a Part VII$1,866,400.00
Patient Revenue - Medicare Medicaid93f Part VII160,500,00
Unrelated business revnue93b Part VII$891,284.00
Capitation Rev
Other rev - sale of asset8d Part 1$984,469.00
Rent revenue97 Part VII$169,820.00
Investment Income4 Part 1$1,522,530.00
Other rev - other11 Part 1$1,601,545.00
Contributions13 Part 1$7,200,000.00
Net assets released from restrictions
Ttl Unrestricted Rev$14,236,048.00
HealthSouth is the nation’s largest owner and operator of inpatient rehabilitation hospitals in terms of patients treated and discharged revenues and number of hospitals. Operating in 27 states across the country and in Puerto Rico, HealthSouth serves patients through its network of inpatient rehabilitation hospitals, outpatient rehabilitation satellite clinics and home health agencies. HealthSouth’s hospitals provide a higher level of rehabilitative care to patients who are recovering from conditions such as stroke and .
Paper written for Green IT & Virtualization, a business course at UVM in which students analyze the environmental, managerial and economic benefits of emerging IT platforms.
Chapter 12 Financial Analysis of Alternative Healthcare Firms LEAR.docxketurahhazelhurst
Chapter 12 Financial Analysis of Alternative Healthcare Firms LEARNING OBJECTIVES After studying this chapter, you should be able to do the following: 1. List some of the major nonhospital and nonphysician sectors of the healthcare industry. 2. Discuss the sources of revenue for the nursing home industry. 3. Discuss the major sources of revenue and expenses of medical groups. 4. List and describe the major organizational types of physician groups. 5. Describe alternative health maintenance organization arrangements. REAL-WORLD SCENARIO Laura Rose has been recently appointed to the Board of ElderCare, a large, for-profit operator of skilled nursing facilities (SNFs) around the country. Laura’s first committee assignment is to the Treasury Committee because of her prior business experience. Although Laura had extensive experience as a hospital administrator, she had relatively little familiarity with the SNF industry. Upon reviewing ElderCare’s recent financial statements, she was concerned about the dramatically declining financial position. She noticed that revenues were declining on per facility and per patient bases. Meanwhile, the company’s debt had been downgraded, and its borrowing costs had risen substantially. She is aware that Medicare implemented a SNF prospective payment system as part of the Balanced Budget Act of 1997. Payment increases by Medicare and Medicaid have not kept pace with increases in costs in recent years. She wonders whether this might be a factor in the company’s financing issues. In general, profitability in the long-term care industry has declined significantly in recent years, and several industry leaders had filed for bankruptcy protection. Although some believe that SNF prospective payment systems were largely to blame, other factors, such as ill-advised acquisitions, excessive long-term debt, and poor balance sheets, probably contributed as well. In essence, she is unsure whether ElderCare’s financing difficulties are unique to management issues at ElderCare or whether they reflect more general market conditions and economic and reimbursement trends. To understand the issue better, Laura needs to estimate the direct financial impact of SNF reimbursement. She asked the ElderCare treasury and controller’s office staff to prepare an analysis of the financial performance of selected long-term care facilities over the period 2006 to 2010. In particular, she wants to know how SNF-bond ratings have been affected by prospective payment systems and what other factors might have contributed to the industry’s deteriorating financial performance. In Chapter 11 we discussed the measures and concepts of financial analysis in some detail, but most of the examples and industry standards were from the hospital sector. The hospital industry is by far the largest sector in the healthcare industry, but it is not the only sector; its rate of growth in recent years has been slower than in other areas. This chapter provides some ad ...
Five Ways Activity-Based Costing Can Maximize EarningsHealth Catalyst
Surviving on thin operating margins means health systems must maximize every financial earning opportunity. To identify threats to the revenue stream, organizations need access to precise, accurate costing information. An activity-based costing (ABC) system leverages patient resource utilization data to reveal exactly how much it costs to deliver care. Unlike traditional costing systems that provide average cost estimates for services rendered, ABC includes five benefits that help systems understand the cost for every aspect of the care delivery process:
1. Comprehensive costing data.
2. Ease of use.
3. Precision and accuracy.
4. Near real-time analytics.
5. A proactive cost strategy.
Five Ways Activity-Based Costing Can Maximize Earnings
Monetization White Paper Final
1. Helping Create Places for Healing
Monetization Trends
in Health System and Physician-Owned Real Estate
2. 2Realty Trust Group Monetization trends |
Prior to 1997, most hospitals and health systems
owned their facilities and had relatively little
incentive to monetize assets under Medicare’s
cost-based reimbursement program.
With the introduction of the Prospective Payment System
in the early 1980s and the eventual elimination of cost-based
reimbursement in the late 1990s, the way in which health
systems viewed their “non-core” properties fundamentally
changed. Many progressive health systems, including some of
the major Catholic systems (Catholic Health East, the former
Catholic Healthcare West, Ascension, SSM) and other large,
prominent systems (Baylor Health Care System, Swedish
Healthcare, IU Health, Orlando Health and Carolinas HealthCare
System), systematically monetized billions of dollars of MOBs
between 1997 and 2008. These organizations realized that
the capital returns associated with operating their real estate
portfolios were often far lower than the hurdle rates required
for investment elsewhere within their organization. The
financial theory behind these transactions became one of re-
deploying low-yielding capital tied up in bricks and mortar for
higher returning investments in equipment, new services and
acquisitions.
With respect to real estate linked with private physician
practices, especially the concern about physician self-referral
and potential penalties associated with the introduction of the
Federal Anti-Kickback laws in 1972 and the Stark laws in 1992
and 1993, many health systems became increasingly uneasy in
their role as landlord to their referring physicians. Errors of both
omission and commission can trip these statutes and result in
fines and penalties, as well as potentially losing future Medicare
reimbursement eligibility. The threat of these penalties
increased some providers’ desire to remove themselves from a
landlord position with their physician tenants.
As capital demand for information and medical technology, physician alignment
and other initiatives becomes more persistent, health systems are once again
pursuing strategies to unlock equity from existing non-core real estate assets,
as well as utilizing new vehicles in the form of third-party capital partners for
new facility development projects. In addition to health systems, many large
physician groups which have elected to own their real estate for business reasons
are frequently dealing with similar issues as they align with hospitals and health
systems in record numbers. The physician groups may be required to relocate or
sell their owned medical office space prior to the affiliation for either regulatory,
business or strategic reasons. This Realty Trust Group white paper explores the
history of these transactions, summarizes current activity and the benefits for the
owner/ seller, and looks ahead at what the future may bring in this sector.
Monetization Trends
in Health System and
Physician-Owned Real
Estate
Historical Trends
$-
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
Billions $ Volume
Source: Real Capital Analytics
The use of third-party capital
for facility development and
monetization has increased
fairly dramatically over the
past 20 years, exemplified
by this chart (shown right)
which tracks medical office
transaction volume between
2001 and 2012.
3. 3Realty Trust Group Monetization trends |
The emergence of an institutional investment market generally
coincided with the regulatory changes occurring in the industry.
Prior to the mid-1990s, there were very few pension funds,
insurance companies, real estate investment trusts and other
large, public or private investment vehicles that were interested
in investing in medical real estate. However, institutional capital
funds continued to grow at an increasing rate, and after a few
of the early monetizations were completed in the late 1990s,
institutional investors relatively quickly became enamored with
the solid fundamentals that healthcare investments provided.
As noted in the preceding chart, transaction volume generally
rose every year since statistics have become available.
The music stopped, though, with the financial
implosion in late 2008.
Carolinas HealthCare System closed their 15-building MOB
portfolio with Healthcare Realty Trust in December that
year, and then there was only one major hospital-sponsored
portfolio transaction in 2009 and 2010. Health systems were
faced with crashing investment portfolios, early-wave EHR
implementation, large scale physician acquisitions and a myriad
of other strategic and operational issues during this challenging
period. Real estate plans for new development and monetization
gathered dust.
However, over the past 18 months or so, there have been multiple
hospital and physician-sponsored MOB portfolios which have
traded, and several others which are either under contract or
currently being marketed, including:
• Denver-based Centura Health sold a 317,026-SF
portfolio in late 2011
• In early 2012, Bethesda Healthcare in Palm Beach,
Florida sold a 133,473-SF medical mall
• Northside Hospital in Atlanta sold two MOBs on its
Alpharetta campus, totaling 287,191-SF
• The Harbin Clinic, situated on the outskirts of metro
Atlanta, recently sold a seven-building portfolio totaling
333,581-SF
Changes in the Air
Although there is clearly some uncertainty about the future
operating rules under the Patient Protection and Affordable
Care Act, there is also a desire for many health systems and
physician groups to move forward with their strategic real estate
plans.Patientpopulationscontinuetogrowandrequireservices,
and demand for new facilities and programs is increasing in
many markets.
The management consulting firm FMI, in its
Construction Outlook published in early 2012,
projected that health care construction would
grow at an average rate of 9.9% between 2013
and 2016.
So, too, is the demand for capital to fulfill the organizational
mission, and thus more use of third-party capital for real estate
needs. Further, third-party capital is currently priced at relatively
inexpensive levels, providing organizations with efficient
alternatives to using internal capital or accessing the tax-exempt
bond market (fornon-profithealthsystems) or the equity market
(for for-profit health systems). Even though strong NFP credits
can currently borrow in the tax-exempt market at historically
low rates, the enterprise still must apply some cost associated
with the use of their “equity” capital— even NFP health systems
can’t be funded 100% with debt. With the weighted average cost
of capital for most large organizations lying somewhere in the
8–15% range, third-party real estate investors and developers
that will provide capital in the 6-9% range can be attractive to
hospitals and physician groups.
As will be discussed later, there is one monetization vehicle that
is relatively new to the health care industry which is potentially
even more attractive than some of the conventional third-party
capital models described above.
This inexpensive debt capital is also having an impact on current
pricing of properties. The high-water mark for pricing and
valuations of medical real estate came between late 2007 and
late 2008, before the market crash.
Historical Trends (continued)
4. 4Realty Trust Group Monetization trends |
As noted earlier, there are two primary reasons why health
systems and physician practices monetize real estate. First, the
capital generated from the transaction can be re-deployed at a
higher rate of return. Second, this type of transaction can result
in significant balance sheet improvement.
Additionally, for hospitals, a monetization transaction removes
the burden of being a landlord to the tenant physicians, thereby
neutralizing penalties which could be suffered as a result of
running afoul of the Stark or Anti-Kickback rules. In addition
to these drivers, there are a series of other benefits which can
accrue to a health system or physician group in monetizing a
real estate portfolio.
These benefits can include:
• Transferring the burden of managing and accurately
accounting for operating expenses of the real estate
portfolio
• Possible avoidance of certain capital expenditures
associated with the portfolio
• Maintaining or improving system credit rating
• Reduction of management time on real estate issues
When a true third party takes ownership of a portfolio, the
expenses and capital expenditures required to maintain the
buildings move along to the new owner as well. Certain lease
structures may require tenants to continue to pay all or a
portion of the operating expenses, but a new owner would likely
bear some of the burden for operating expenses and capital
expenditures, thus relieving the hospital or physician group from
these costs.
From a credit rating standpoint, the ratings
agencies have generally been neutral to slightly
positive about monetization transactions, often
favorably citing the increased liquidity they
provide to a system.
There are multiple challenges as well, including the potential
transitioning of the property management function. Health
system executives worry about third-party owners potentially
damaging their relationship with their physician tenants, but
frequentlythird-partyownerscanprovideanenhancedproperty
management experience for tenants due to their expertise
in medical real estate management. The flexibility of moving
tenants within a building could be diminished with a third-party
owner, but can often be addressed by proper covenants in a
ground lease.
Benefits & Challenges
Changes in the Air (continued)
Althoughmanyoftheotherrealestatesectorsarestillrecovering
(including the residential market), medical real estate pricing
has now returned to the point where most properties and
markets are emulating, or are near to emulating, the peak pricing
experienced before the downturn.
Institutional investment capital has once again begun to flow
strongly into the medical real estate sector, creating a short-
term supply / demand imbalance between the capital and
available properties in which to invest. Simple economics
suggests that prices will remain high for some period, until this
imbalance changes. Thus, more owners are taking advantage
of the currently favorable market conditions, and monetizing
portfolios of properties.
5. 5Realty Trust Group Monetization trends |
Structures Utilized
There are three primary structures that have been used in most of the portfolio monetizations: a sale to a third party, with the seller
leasing back a portion of the space; a sale with the seller master leasing back all of the space; and a joint venture. Each of these
structures provides unique “benefits” and “burdens”, as summarized below:
Benefits
• Allows hospital / physicians to retain partial
ownership of the assets
• Hospital may maintain certain controls through
properly-executed ground lease or other
restrictive covenants
Burdens
• Provides less than 100% of the value of the assets
• More complex transaction than other two
structures
• Interest in property is relatively illiquid
Benefits
• Provides 100% of the market value of the facilities
• New owner responsible for property management
and capital expenses
• Removes hospital from landlord / tenant
relationship
• Hospital shifts leasing risk for vacant space to
new landlord
• Hospital may maintain certain controls through
properly-executed ground lease or other
restrictive covenants
Burdens
• Introduces third party into hospital / physician
relationship
• Complete control of space is reduced
SALE/LEASEBACK
Sale/MASTER Leaseback
Benefits
• Provides 100% of the market value of the
facilities; proceeds may be higher than traditional
SLB
• More control over leasing and property
management than traditional SLB
• Hospital may maintain certain controls through
properly-executed ground lease or other
restrictive covenants
Burdens
• Does not remove hospital from landlord / tenant
relationship due to sublease arrangements
• Hospital maintains leasing risk for vacant space
Joint Venture
6. 6Realty Trust Group Monetization trends |
A “New” Structure
Physician Transactions
A relatively new structure for real estate transactions in the
health care industry is the use of Credit Tenant Lease (CTL)
financing, which is currently available for “A” and “AA”-rated
credits. This structure has been utilized in other industries for
years, but has only recently found its way into the health care
industry.
Essentially, CTL financing is an alternative to the tax-exempt
bond market, or the other structures described earlier. It
provides up to 100% financing for existing and to-be-developed
projects at extremely attractive, long-term fixed rates—at or
near what could be achieved in the tax-exempt market. This
structure works best for single tenant, core facilities which the
health system expects to occupy for an extended period. As
noted above, it can be used to monetize existing facilities or for
new development projects. The financing rates associated with
these transactions are currently far lower than a comparable
sale-leaseback.
The typical structure involves the hospital setting up a single
purpose entity which would maintain control of the property
throughout the 20+ year lease term. A CTL lender / investor
would fund the transaction, which would be paid back subject
to a lease, which effectively serves as a self-amortizing loan. The
lease payment would be based on a Treasury benchmark plus
a spread, with no annual escalations. The final terms would be
subject to the hospital’s credit, the size of the transaction, the
type of facility involved and the current market conditions. The
term of the financing would be coterminous with the lease.
This structure is rapidly gaining favor with strong
credits as a way to leverage their financial strength
and utilize alternative, more cost-effective capital
sources for specific real estate assets.
While the majority of the real estate monetization activity that
has occurred has been between health systems and investors,
there are many factors influencing larger physician practices
to consider monetization alternatives as well. Several of those
factors are consistent with trends driving the monetization
activity for health systems, such as the current pricing levels
influenced by the imbalance between supply and demand and
the opportunity for affordable third party capital.
Similar to health systems, large physician groups are feeling
the pressure of increased capital constraints, in addition to
decreasing reimbursement trends. Now more than ever, it is
critical for physician practices to invest their capital in areas of
their business that provide the highest return (e.g., physician
recruitment, medical equipment, etc.).
In addition to the issues discussed above, there are other factors
unique to physician groups which should be considered by
physician owners in their monetization decisions. First, the wave
of physician employment and/or alignment with health systems
continues at a rapid pace, and this trend is not expected to
end anytime in the near future. More physician practices with
large real estate portfolios are seeing their real estate either
significantly complicate a potential acquisition / alignment or, in
some cases, completely prevent the transaction from occurring.
By divesting their real estate portfolio, physician practices
can potentially become more attractive from an employment
perspective, since a divestiture would eliminate potential
Stark / Anti-Kickback real estate-related issues.
Additionally,itisverycommonforphysician-ownedrealestateto
be held outside of the actual operating entity and, as a result, the
physician owners are typically required to carry recourse debt
on the properties. Given the uncertainty within the traditional
financing markets and the inevitable increase in interest rates,
many physicians are not willing to be exposed to such severe
potential refinancing risks, both from interest rate fluctuation as
well as potential debt-to-equity requirement changes.
As mentioned earlier, the Harbin Clinic, which is the largest
multi-specialty physician practice in Georgia, recently decided
to take advantage of the market conditions and monetized the
majority of its real estate portfolio, including seven buildings
consisting of 333,581 square feet. The Clinic’s main reasons for
monetizing were to free up capital for its physicians, mitigate
substantial future refinancing risks, remove itself from the real
7. 7Realty Trust Group Monetization trends |
Physician Transactions (continued)
Conclusion
estate property management business, and become a leaner,
more flexible organization from a balance sheet perspective. All
of these objectives were accomplished by entering into a sale /
leaseback with a large health care real estate investment trust.
Similar to sale / leaseback transactions between institutional
investors and health systems, physician practices can often
accomplish similar objectives from a control standpoint through
certain covenants in the lease or ground lease agreements.
ABOUT REALTY TRUST GROUP
Since our inception in 1998, Realty Trust Group has become
one of the most experienced and knowledgeable real estate
advisory firms in the healthcare industry.
RTG has offices in Knoxville, Tennessee and Atlanta, Georgia,
and has completed projects for clients in 23 states. We
serve hospitals, health systems, physician groups and other
owners, users and investors of healthcare real estate. Our
philosophy is to provide innovative solutions to the complex
and challenging issues found in today’s healthcare real estate
market. These solutions include strategic campus and facility
planning, portfolio optimization, portfolio monetization,
project development, site analysis and acquisition, asset
management, fair market value opinions and many other
ideas and services.
For more information about our firm please visit our website
at www.realtytrustgroup.com.
With demand for capital to grow and implement the changes required of the Affordable Care Act
continuing to stress providers’ abilities to fund new initiatives, along with a market which is currently
very attractive for sellers, several recent medical real estate portfolios have been monetized. Health
systems and physician groups considering a monetization effort need to be aware of the issues which
can impact them post-transaction, and fully understand the strategic and financial benefits which can
occur as a result of a successful transaction.
8. Real Estate Advisors to the Healthcare Industry
In the end, our work is about
putting patients together with
their healthcare providers.
www.RealtyTrustGroup.com
Scott Evans
Executive Vice President
sevans@realtytrustgroup.com
1100 Johnson Ferry Road
Building 1 – Suite 400
Atlanta, GA 30342 • 404.402.5503
Greg Gheen
President
ggheen@realtytrustgroup.com
One Cherokee Mills
2220 Sutherland Ave.
Knoxville, TN 37919 • 865.521.0630