A $1 Billion Deal Brings New Player To South Florida Hospital Market
Steward Health Care is the largest physician-owned hospital network in the country and bought several facilities in Miami-Dade and Broward counties.
There's a saying that business should not be personal. Dr. Ralph de la Torre ignored that adage.
De la Torre is the founder, chairman and CEO of Steward Health Care. It is the newest player in the South Florida health care market. In August, the company closed on a $1.1 billion purchase of five hospitals in Miami-Dade and Broward counties.
"It was personal. It's home for many of us," he said.
De la Torre grew up in Florida after his parents fled Cuba in 1960. His father was a cardiologist. His mother was a nurse. "It's where I go when I visit my mom, my brother. It was very personal and it is very personal."
The deal that is personal expands Steward's presence in Florida with North Shore Medical Center, Hialeah Hospital, Palmetto General, Coral Gables Hospital and Florida Medical Center. Together the facilities have more than 2,000 hospital beds.
Steward Health Care is the largest physician-owned health network in the country. De la Torre, a cardiac surgeon, put together Steward Health through a series of deals over the past 11 years with the help of a private equity investor. Steward has expanded its hospital and medical center footprint from its traditional base in Massachusetts to 10 states and two countries. It’s newest is in South Florida.
"These facilities have a number of things that make them incredibly appealing to us," said Stewart Health North America president Dr. Sanjay Shetty. "We absolutely love the South Florida market. We know that it's a market that is positioned for continued growth. Just from pure demographics, it makes a lot of sense. Health care is a growth industry."
Steward tried to get into the regional health care industry 10 years ago. In 2011, the company offered to buy Miami's Jackson Health System for $1.1 billion dollars. At that time, Jackson was in financial trouble and it would have represented a hybrid business model, considering Jackson’s status as the safety net public hospital in Miami and Steward is a for-profit company. Three months after launching the effort, it ended with no deal.
Steward is much larger now and is making a big play for South Florida patients.
"We will make money from operations day one on them. I'm not worried about that," de la Torre said. "I pretty much predict that we're not going to get a penny out of South Florida for a few years because every penny (the hospitals) make, I'm going to reinvest."
Since completing the deal to come to South Florida, Steward struck a deal to sell all of its hospitals in Utah to HCA Healthcare. No financial details have been disclosed, but in a news release, de la Torre said the sale freed up money for Steward to invest in its accountable care model.
The accountable care model
On its corporate website, Steward has a section titled “business model.”
The accountable care model brings together doctors, hospitals and other health care providers to work together on patient care with the goal of lowering the overall cost of care through better coordination and reducing necessary services. "We believe that we can continue to contribute to the growth of that value-based model within South Florida," said Shetty.
South Florida is an expensive place for health care – almost $17,000 per Medicare patient in Miami-Dade County. That’s 40 percent higher than the statewide average. It is a little less in Broward and Palm Beach counties.
Widening the difference between what a big payer like Medicare pays and the actual cost of care can lead to savings and profits.
"Margin can be captured by the provider, but it's important to note that it is captured by the providers, all the physicians, everybody in the whole system," said de la Torre.
The accountable care effort is just one part of Steward’s business model. Another key part is what de la Torre calls “asset light.” Steward does not own its hospital buildings and land. It rents them.
That’s one of the strategies for how it paid for expansion. It bought its five South Florida hospitals for $1.1 billion dollars and quickly sold the real estate to another company for $900 million.
"The hospital is the people," said Shetty, a cardiologist. "It is not the bricks and mortar."
While this structure is not new or unique to Steward, what is new is the company no longer is majority owned by a private equity investor. Cerberus Capital Management is based in New York. It specializes in buying companies in financial trouble. That’s how it wound up owning Steward for its first decade.
De la Torre teamed up with the firm to buy its first half-dozen hospitals in Massachusetts. Cerberus transferred its ownership stake of Steward a year before the company entered the South Florida market. De la Torre led a group of Steward’s doctors to take over ownership. The ownership group still owes $350 million in future payments to its landlord in addition to its usual rent.
Shetty expects to invest tens of millions of dollars in Steward's new South Florida hospitals "imminently in order to jumpstart a number of the programs that we'd like to do." He identified cardiovascular services and neurologic services including stroke as two areas Steward expects to grow with these facilities.
Steward expands into the regional health care market as the federal government has been coaxing the industry toward more price transparency. Since January, hospitals have been required to post prices for 300 common services they’ve negotiated with insurance companies, and the cash prices they charge patients for that care.
Few are fully following the rule, according to a study by PatientsRightsAdvocate.org, a nonpartisan, nonprofit group supporting health care price transparency. Six months after the rule took effect, it found only one in 20 hospitals were fully following the law.
For some hospitals supplying the data, it can be hard to find for patients, and difficult to read. For example, the required price list for Steward Health Care’s North Shore Medical Center runs almost 4,500 lines in a spreadsheet. There are dozens of prices for different types of X-rays, for instance.
De la Torre supports the transparency effort, but questions its usefulness for patients. He called it "overly cumbersome and complicated."
Instead, he thinks what he called the average weighted payment would be more meaningful.
"It matters what you on average get paid for a hip surgery or shoulder surgery or a pneumonia. And that's a factor of your different commercial (insurance reimbursed) rate," he said.
He acknowledged, however, that average weighted price would not necessarily be helpful for individual patients. And he doesn't think patients pay much attention to the total cost of service anyway.
"I think what will drive them is what it costs them if there's a copay or a deductible," he said.
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