Becker's Hospital Review

10 CFO / FINANCE Prime CFO on how owning real estate enhances care By Madeline Ashley Steve Aleman, CFO of Ontario, Calif.-based Prime Healthcare knows a thing or two about healthcare real estate acquisition. e health system has 44 hospitals with more than 300 outpatient locations across 14 states and most recently purchased four facilities from Medical Properties Trust for $350 million. It is all part of a plan to acquire the real estate for all of Prime Healthcare's operations and to decrease the debt levels associated with the facilities. Mr. Aleman connected with Becker's to learn more about the drive behind the health system's financial plan and why he believes healthcare real estate is a good investment. Question: Prime Healthcare recently completed a $350 million purchase of Medical Properties Trust facilities. What was the driving force behind that acquisition? Steve Aleman: For Prime Healthcare, the single, greatest priority is always delivering quality, efficient care to meet the needs of the communities and patient populations it serves. But when you talk about the delivery of care, you not only are referring to those caregivers on the front line and the services they provide, but you are also talking about the care setting of where those services are provided. Successful health systems are experts at managing both the operations of the hospitals as well as appropriately managing the asset portfolio of the healthcare system. Prime takes a holistic approach to delivering physician-led, patient- centered quality care to its communities, and as a result, it was determined years ago that having full ownership of the healthcare system assets as well as the operations would provide greater freedom and optionality to respond to the evolving healthcare needs of the community. Q: Prime's business strategy over the last few years has been to acquire real estate for its operations and to pay down debt associated with the facilities. How did this strategy come about and how far has Prime come in its goal? SA: Prime Healthcare has a legacy of saving hospitals to serve communities. What that has meant over the years is that Prime acquired facilities that were in financial distress and invested in their turnaround when no one else would or could. As Prime expanded nationally, ultimately saving 46 hospitals in 14 states, oen the only means of raising financing to save those hospitals was by leveraging the real estate assets to raise capital and reinvest those funds back into the staff, technology and facility to fund its growth. But that type of financing is expensive, and in fact it just gets more expensive over time. However, as a result of Prime's successful implementation of its operating model and continued investment in technology, systems, teams and services into these once struggling hospital facilities, the turnaround of those facilities was ultimately realized acquisition aer acquisition, resulting in a multi-year track record of growing operating margins. ese facilities reported years of trended solid performance, and as a result there were more cost-efficient forms of capital available that offered the ability to reduce periodic debt service and improve cash flow. In early 2020, most of Prime's facility real estate was owned by a third party with expensive lease rates, that all together totaled over $1.4 billion. Four years later, Prime now owns all the hospital facility real HCA CFO sees 'encouraging signs' from 2-midnight rule By Andrew Cass N ashville, Tenn.-based HCA Healthcare CFO Bill Rutherford said although it is still early, the system is starting to see "encouraging signs" from CMS' two-midnight rule. "We do believe it's providing a moderate benefit," Mr. Rutherford said on the health system's April 26 earnings call. In 2024, Medicare Advantage plans must provide coverage for an inpatient admission when the admitting physician expects the patient to require hospital care for at least two midnights, otherwise known as the two- midnight rule. The rule was included in the 2014 Medicare inpatient prospective payment system final rule. In 2023, CMS clarified in its final rule that MA plans must also follow the two-midnight rule, its case-by-case exception and the inpatient-only list beginning in 2024. Mr. Rutherford said the health system is seeing some of its two-midnight inpatient volume grow, which it believes is due to the rule. "But on the other side, it's still early and not all claims have completed the adjudication process," he said. "But at this point we still believe there's going to be a modest benefit." Steve Filton, CFO of King of Prussia, Pa.-based Universal Health Services, however, said the rule has not affected inpatient acute volumes "best we can tell." "I think both our internal resources and our third-party consultants tell us that they're not seeing a significant or measurable change in the behavior of our payers that's really impacting our inpatient activity," Mr. Filton said on the system's April 25 earnings call, according to a transcript from Seeking Alpha. "I would say that in our minds, most of the growth in acute care volumes in the quarter is exclusive of any change in payer behavior." n

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