Health-care consolidation in general worries Ennen as his hospital becomes an ever smaller fish in a pond filled with whales. “The more health care moves towards consolidation and the corporate world—well, Aetna sends letters out telling us what they will do with zero input from us,” Ennen says. “CVS will continue that. It’s hard for me to figure out how to have a conversation with CVS or Aetna. I feel less empowered today than I did yesterday.” Ennen doesn’t know how exactly the CVS-Aetna merger will affect his facility, and Troyen Brennan, the chief medical officer for CVS Health, says Ennen shouldn’t worry that the merger will change Aetna’s position in the insurance marketplace vis-a-vis hospitals. Aetna, Brennan argues, won’t have any more market power than it did before. But the merger is symbolic of what Ennen fears will be a health-care oligopoly that leaves his own hospital with less control over its own fate.
Given this landscape, it’s no wonder Circleville’s hospital chose to join a larger health group. Colburn, Berger’s CEO, believes that’s the only way to maintain a local hospital that can serve local needs. While a deal hasn’t yet been worked out, Berger will likely be leased to Ohio Health. Ohio Health’s payment of the lease will take the form of investments in facilities, new specialists, and training and education for staff. That way, at least Berger could remain somewhat autonomous and local.
Other hospitals, including some in big cities, have chosen different paths when they’ve faced some of the same pressures. Some have used sale-leasebacks to real-estate investment trusts (REITs). In a sale-leaseback, a hospital sells its facilities, and then leases back those same facilities from the REIT. Such a deal can yield a lot of cash, but, according to Eileen Applebaum, a senior economist at the left-leaning Center for Economic Policy and Research, “The rent payments reduce the operating surplus of the hospitals, many of which already faced challenging economic circumstances.”
Some hospitals have been bought in leveraged buyouts by private-equity shops. For example, in 2008, Capella Healthcare, a chain of hospitals owned by the private-equity firm GTCR LLC, leased the city-owned hospital in Muskogee, Oklahoma. It subsequently executed a deal with a second facility, Muskogee Community Hospital, in which its lease payments are put toward eventual ownership of the hospital. The hospitals changed hands again when a REIT, Medical Properties Trust, purchased Cappella for $900 million. In April of last year the hospitals were flipped a third time when RegionalCare Hospital Partners, a chain owned by the private-equity giant Apollo Group absorbed Capella in a $650 million deal.
This merging, semi-merging, and buying out is of a piece with what’s been happening to airlines (Delta-Northwest and United-Continental), silicon chips (Broadcom–Qualcomm–NXP), and telecommunications (AT&T–Time Warner). Hospitals, however, are different. Consumers don’t usually pay directly for most of the expense—insurance companies or governments do. And while the same kinds of cost-saving plays—“synergies”—used in other consolidating industries can be run with hospitals, such maneuvers can benefit investors far more than the commonweal.