Posted byOrthoEx Posted in,
Posted on Sep 25, 2017

By Melanie Evans/

Some of the hospital industry’s most active investing these days is happening outside the hospital.

Giant U.S. hospital operators, including Tenet Healthcare Corp., Dignity Health and HCA Healthcare Inc., are investing heavily in surgery centers, emergency rooms and urgent care clinics located outside hospitals, chasing after patients who increasingly want cheaper and more convenient care.

Insurers and employers that pay for health care are helping drive the change as they shift more Americans to high-deductible insurance plans, which require patients to pay more of their medical bills before insurance kicks in. That has pushed more patients to seek lower-cost options, says RBC Capital Markets managing director Frank Morgan, a hospital analyst.

Hospital demand slumped during the last recession, a trend that has continued even as the economy recovers, American Hospital Association data through 2014 show. Admissions growth at HCA hospitals has slowed in recent quarters to 1% to 2%, as a boost from the Affordable Care Act faded, while Tenet’s admissions have been flat or down 1% to 3% most quarters since late 2015.

In an effort to strengthen their hold on their markets and prevent rivals from siphoning off patients, hospitals are investing outside their own walls. They are “following the patient,” Mr. Morgan said.

The strategy also places hospital satellites closer to where patients live and work, which executives say they hope will win over new, loyal customers.

In July, Ashley Hammack rushed to a new free-standing ER in Spring Hill, Tenn., after growing weak from vomiting. The facility, a satellite of TriStar Centennial Medical Center, is a 10 minute drive from her home, about 20 minutes closer than the hospital where she delivered her daughter five months before.

Doctors saw her quickly. “I never even sat down,” Ms. Hammack recalled. She was treated for severe dehydration from what doctors suspected was food poisoning and sent home with medication.

Trevor Fetter, Tenet’s outgoing chief executive, says company executives have pursued rapid outpatient expansion partially out of necessity. Slumping admissions contributed to Tenet and HCA lowering their earnings estimates for 2017, which in turn hit stock prices.

It’s unclear how the shift to out-of-hospital care will affect long-term earnings. Non-hospital operations typically generate lower revenue than hospitals but produce higher profit and require less capital to build and run.

But “it’s happening anyway,” Mr. Fetter said. “Somebody else is going to do it to us if we don’t do it ourselves.”