In Brief
- A midwestern health system required an intensive assessment of their post-acute facility after facing significant financial strain and operational hurdles.
- After thorough evaluation, transitioning the non-core facility emerged as the most strategic solution.
- With Huron, the health system successfully transitioned the facility to a reputable new owner, preserving quality care and eliminating operational and financial burdens.
Challenge: Stabilizing labor and operating costs to restore financial health
A nonprofit healthcare system based in the Midwest faced operational challenges driven by census decline and staffing turnover, resulting in high contract labor costs and increased operating expenses. As a result, the organization's net operating income was rapidly declining.
Financial losses strained their previously stable post-acute facility, which fell outside core business areas.
With increasing operational, regulatory, and financial challenges, this healthcare system required an intensive assessment of their post-acute facility to determine a financially viable strategy that continued to deliver high-quality healthcare to their community.
Approach: Transitioning post-acute facility to new ownership aligned with the health system's mission
The health system engaged Huron to help address their post-acute and long-term care facilities’ operating losses. They worked together to:
Determine potential paths to profit: Three potential options were outlined to help deliver sustainable, high-quality healthcare:
- Performance improvement strategies: Continue to own and operate facility while implementing financial and operational recommendations.
- Outsource: Contract with a third-party management company to operate the facility while maintaining ownership and governance over strategy and financial decisions.
- Asset sale: Transition the facility to new ownership aligned with strategy and goals for maintaining patient quality and experience.
Establish leadership and strategy alignment: Huron led thoughtful discussions with senior management and board members. Ultimately, the decision was made to transition their post-acute facility.
Initiate process to identify new owner: With transaction advisory support from Huron, the health system established their search for a well-aligned organization with a commitment to:
- Serve the patients and seniors of the community.
- Maintain the transition of care from their acute care setting.
- Drive growth for both organizations to achieve better outcomes for patients.
With these goals in mind, Huron prepared an offering memorandum, created a data room, and launched marketing efforts to approximately 40 hand-selected prospects.
Secure and expand agreement of purchase: Huron fielded strong interest from multiple groups, working diligently to find an organization aligned with the system’s mission and requirements in a challenging lending environment. After receiving a strong letter of intent, Huron advised leadership to submit a counteroffer to include a vacant, unused parcel of land, increasing the purchase price. Huron also provided guidance and expertise throughout the due diligence process, including change of ownership (CHOW), negotiation of purchase and sale agreement (PSA), and operations transfer agreement (OTA) to successfully close the complex transaction.
Results: Eliminated financial and resource strain while maintaining quality care for community
Together, the healthcare system and Huron seamlessly transitioned ownership of the post-acute facility, ensuring residents, families, and staff experienced as little disruption as possible. They effectively eliminated financial and resource strains without sacrificing access to quality care for their community. Other key results included:
- 40 prospective owners identified
- 6-month timeline from marketing outreach to full ownership transition
- Received a strong offer with the commitment to continue cooperation, collaboration, and engagement
- 5% increase in purchase price negotiated via counteroffer