The U.S. hospital sector is in serious distress.
While many of the largest hospital systems in the nation are doing well financially, hundreds of facilities are in danger of shutting their doors, especially ones located in rural areas. One ripple effect of the hospital struggles could be increased dealmaking activity in the ambulatory surgery center (ASC) space.
If a hospital system is struggling financially, it could seek to offload some of its more valuable assets – such as an ASC – to stay afloat. Alternatively, some hospital systems may seek to rebalance their portfolios entirely, selling off inpatient facilities to refocus on ambulatory and outpatient care, which have favorable long-term outlooks.
Over the past decade, more than 100 rural hospitals have closed, according to a new report from the Center for Healthcare Quality & Payment Reform.
Currently, there are more than 700 rural hospitals – over 30% of all rural hospitals in the country – at risk of closing because of the serious financial problems they are experiencing, the report notes. Over half of these hospitals are at immediate risk of closing because of the severity of their financial problems.
Rising labor and supply costs are one contributor to the financial struggles. Low financial reserves and losses on certain patient services are other factors.
“The majority of rural hospitals in the country lose money delivering patient services,” the report reads. “It costs more to deliver health care in small rural communities than in urban areas, and many health insurance plans do not pay enough to cover these costs.”
Past financial distress has, in the past, created asset sell-offs and rebalancing in other corners of health care.
Many hospitals and health systems, for example, have offloaded home health and hospice programs to dedicated operators in those spaces.
As some hospitals look to cash in on the most valuable parts of their operations out of necessity, other organizations may seek to double down on ASCs and other forms of outpatient care because it’s where the health care tailwinds are blowing.
Tenet Healthcare Corporation (NYSE: THC), for instance, on Aug. 5 announced that it had entered into a definitive agreement with Orlando Health, selling Tenet’s 70% majority ownership interest in Brookwood Baptist Health in Birmingham for about $910 million in cash.
The transaction will include five hospitals: Brookwood Baptist Medical Center, Princeton Baptist Medical Center, Walker Baptist Medical Center, Shelby Baptist Medical Center and Citizens Baptist Medical Center. It will also include affiliated physician practices and other related operations.
As Tenet de-levers and increases liquidity, it could look to further grow its ASC arm moving forward. ASCs have been a major highlight for the company in 2024.
“I think there’s a lot of room for not only growth, but also expansion of the range of services that can be offered in the ambulatory surgery setting,” Tenet CEO Saum Sutaria said during the company’s Q2 2024 earnings call.
Another ripple effect of the hospital struggles: an improved recruitment and retention landscape for ASCs. Frequently, hospitals can offer higher compensation to clinical professionals, going head to head with ASCs for some of the same roles. If hospitals in some markets close or can no longer compete for labor to the same degree, it could translate into staffing wins for ASC operators.
