In the wake of health reform, several health systems actively pursuing acquisitions have accumulated portfolios of non-core assets. These non-core assets fall into two categories: long-term care investments (skilled nursing facilities, assisted living facilities, and rehabilitation units) and ancillary outpatient businesses (ASCs, imaging centers, and cancer centers).
Since the challenges and value drivers of non-core assets often differ greatly from the health system’s core line of business, these non-core assets may adversely affect a health system’s bottom line and therefore be viewed by a system’s stakeholders as non-performing investments. While these assets often lower a system’s bottom line without the benefit of added referral sources, recently favorable market conditions may yield hidden value in these service lines.
Specialized long-term care and ancillary operators have the ability and expertise to operate non-core assets at higher efficiency and profitability than health systems, while also increasing the quality of care and outcomes. Niche operational expertise and knowledge of the competitive landscape within the industry allow specialized operators to unlock hidden value and potential synergies through the ownership of these assets. In short, valuable enterprises can be disguised as non-performing non-core assets.
Example of Non-Core Value Creation
In 2013, VMG Health was engaged to help a health system divest itself of a non-core SNF. This SNF had historically experienced financial losses, and the health system had low expectations for the divesting price.
VMG Health prepared an informational offering document and solicited market offers for the SNF. The market interest in the under-performing SNF exceeded the health system’s expectations. Multiple bidders emerged and the SNF was sold for a very attractive price.
