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Fixed-Income Insights

Not-for-profit hospitals are aiming to lower costs and improve patient outcomes as they offer a broader range of services.

(This article is from the forthcoming third-quarter 2019 edition of The Muni Quarterly.)

Lord Abbett notes a growing number of not-for-profit hospitals are embracing the full continuum of care by adding outpatient clinics, urgent care centers, physician practices, senior nursing facilities, hospice care, and home health to their book of business. In this way, hospitals are increasingly becoming self-sustaining healthcare delivery systems.

Driving this trend is pressure by insurance providers, including Medicare, to manage the patient both inside and outside of the hospital, with the twin goals of lowering healthcare costs and improving health outcomes. By transforming into integrated delivery systems, hospitals hope to decrease the per-unit cost of care, achieve clinical efficiencies, access larger patient populations, and coordinate care after the patient leaves the hospital.

A further driver of this trend is providers’ growing ability to perform procedures in an outpatient setting. As technology advances, procedures that required a hospital admission followed by a lengthy recovery can now be performed in an outpatient clinic or surgery center, with the patient recovering in a rehabilitation facility or at home with the assistance of outpatient rehabilitation or home health care.  

Hospitals Expand Services through Acquisitions
To transform into fully integrated networks, hospitals are engaging in vertical integration strategies by acquiring senior living facilities, hospice companies, urgent care centers, outpatient facilities, physician practices and insurance operations.  In 2018, ProMedica Health System, a Toledo-based system with 13 hospitals and a large employed medical group, agreed to acquire HCR ManorCare, the nation’s second largest skilled nursing provider and a home health and hospice provider. Through the acquisition, ProMedica hopes to better manage its patients’ care following their stay at the hospital.

Ascension Health Alliance, the largest not-for-profit healthcare system in the U.S.1 with 154 hospitals and senior care and home health operations, has positioned itself as a formidable integrated health system.  Ascension plans to further diversify its revenue stream by shifting its focus away from hospital care and expanding its footprint in urgent care, senior living, home health and telemedicine.

Likewise, Sanford Health, a North Dakota-based health system with 44 hospitals, over 250 clinics and a large health plan, recently acquired Evangelical Lutheran Good Samaritan Society, a senior care provider operating over 200 skilled nursing, hospice assisted living, rehabilitation and home health facilities in 24 states.  With the addition of Evangelical’s home- and community-based services, Sanford hopes to fill gaps in care and coordinate care after patients leave the hospital.   

Growing Competitive Pressure from Insurers
At the same time, the not-for-profit hospital industry is experiencing growing competition from health insurers trying to build out their provider networks.  In so doing, health insurers hope to lock in more customers and lock out physicians and hospitals affiliated with other health plans.  

The pending merger between CVS Health and Aetna would allow Aetna to steer patients to retail clinics, away from costlier settings. Similarly, a Walgreens-Humana merger would involve opening senior-focused care centers in Walgreens stores, giving Humana more control over these patients’ referrals.

When making investment decisions in this sector, Lord Abbett will continue to analyze a hospital’s momentum in embracing the full continuum of care, whether through partnerships, acquisitions or mergers, and favor those on the road to becoming self-sustaining health networks.


1Source: Statista; based on 2017 data.



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