Monday, April 19, 2010

Health Care Language Devolves: Nonprofit Hospitals in Play

The health reform bill renames nonprofit community hospitals, calling them "private tax exempt facilities." PPACA's provisions include "accountable care organizations," formerly health maintenance organizations. and "bundled payment," previously known as capitation. HMO's and capitation drove a frenzied buyout period in the mid 90's as health systems evolved.

Deal making is back, with new players ready to strike. Private equity underwriters (PEU's) believe health reform is ripe for deals producing 30% annual returns. As a result, nonprofit hospitals are now in play. Financially stressed safety net hospitals should be available on the cheap, as major health insurance expansion doesn't kick in until 2014.

Less than a week after my post detailing the plight of nonprofit hospitals, Caritas Christi Health System inked a deal with hell hound Cerberus Capital Management. Cain Brothers LLC advised Caritas on "monetizing" the largest nonprofit community hospital system in New England. Caritas wasn't saved by three years experience under Massachusetts health reform.

The Blackstone Group's Vanguard Health Systems will buy Detroit Medical Center and its eight hospitals. Like the Cerberus deal, no new money will go into area foundations, a common feature of prior nonprofit hospital sales. All capital goes into the asset they're acquiring.

Blackstone's Stephen Schwarzman was a frequent White House visitor, meeting with major health reform architect Peter Orszag. Vanguard paid its owners a $300 million dividend, paltry compared to HCA's $1.75 billion. HCA borrowed to finance their dividend to PEU owners.

How many nonprofits will sell out by 2017, three years into Obama's major coverage expansion? How many will be bought out by PEU's?

Cain Brothers stands ready to help other struggling nonprofit hospitals monetize their assets. An infamous Cain killed his brother. Today's language points to a similar death, that of safety net, nonprofit community hospitals.

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