The Evolution of Post Acute Care.
Over the past 40-plus years, freestanding Post-Acute Care Hospitals have become heavyweight contenders in the care continuum. Navigating reimbursement policy changes along the way, the construction surge that began in the 1980s with Inpatient Rehabilitation Facilities (“IRF”) continued with Long Term Acute Care Hospitals (“LTACH”) following suit in the ’90s and 2000s. In contrast, the number of Behavioral Health Hospitals in the U.S. has decreased over the last 50 years and, until recently, were not considered viable candidates for joint ventures and clinical alignments with Acute Care Hospital Systems.
Since the pandemic, that has changed dramatically.
Bigger and Better Organized.
Post-Acute Care providers are much less fragmented and disconnected today than they were a few decades ago. That is especially true for Behavioral Health Hospital operators. Mergers and acquisitions and aggressive new development have resulted in there being just a few large providers in each category. Similarly, Acute Care Hospitals and systems across the country have been consolidating, resulting in the ten largest health systems controlling 25% of the inpatient market according to a 2022 JLL report.
Better Together.
Until recently, these new specialty hospitals were often built without an alignment or partnership with their local/regional acute care counterparts. That “go it alone” mentality has shifted toward pursuing partnerships and alignments with Acute Care Hospitals and systems. This comes at a time when fewer market opportunities (i.e., bed need) and seemingly endless reimbursement challenges make access to payors and patients critical. The result has been a more vigorous pursuit of Joint Ventures and Clinical Alignments with Acute Care providers. Clinical Alignments rarely require a co-investment; the goal is clinical integration and a strategic alignment that yields better outcomes for both parties. As a result, they tend to be less challenging.
Financial partnerships, however, often between for-profit and non-profit providers and involving both equity and ownership, can be complex. Culture is often the first hurdle - clear that, and you get into issues like tax structure, governance, branding, fair market value, compliance, antitrust, clinical integration, capital investment, lease liability, employees and provider contracting, and other considerations.
In both cases, they are worth the effort. Carey Gehl, Executive Director of Growth at UnityPoint Health in Iowa, recently said in an American Hospital Association article, “As the focus on population health management grows, health systems need to understand their own capabilities and where gaps may exist so they can identify partners with new competencies to fill any such gaps and maximize care delivery,” Gehl says. “Joint ventures are one avenue to enhance a health system’s capabilities.”
Acute Care providers are investing in focus and expertise, expanding market reach and brand footprint, and increasing patient access to specialized care while limiting their capital investment and liability.
Post Acute Care Hospital Real Estate Investment.
Post-Acute Care Hospital real estate has emerged as a popular, reliable investment. Investor interest remains high in these single-tenant, special-purpose, built-to-suit healthcare facilities when they are leased to proven, creditworthy operator-tenants.
Prevarian develops Post-Acute Care Hospital real estate and enables JV opportunities on behalf of our Behavioral Health and IRF operator-tenants. We identify markets proactively, invest in market analysis to validate bed need, prepare preemptive site searches and site planning, initiate informed conversations with Acute Care Hospital leadership, and then make the introduction to potential Behavioral Health and IRF operator partners. The result is a long-term, viable, durable investment in a strategic healthcare real estate investment.
Post-Acute Care Hospital operators can certainly be successful without a joint venture. JVs can be complex, expensive, and take a lot of time (“time kills deals”) when speed to market is usually a critical consideration. When possible, JVs and Clinical Alignments are an excellent strategy for establishing a reliable presence in a competitive market, achieving financial success, and improving outcomes in patient care and access to vital services.
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