The financial situation for hospitals and health care organizations remains challenging. The accrediting agencies, Moody’s, Fitch, and S&P all have negative outlooks for the hospital industry. Hospitals are facing numerous revenue challenges. These challenges include the shift from inpatient admissions to outpatient procedures; slower growth in utilization, in part from the increase in consumerism and programs with greater patient financial responsibility; government reimbursement cuts; shifts in reimbursement to population health programs and pay for performance; and lower and changing reimbursement from commercial payors. Profitability margins have also tightened.

Despite these difficulties, hospitals still have need for significant capital. Hospitals are faced with ever-increasing information technology demands, the need for capital to support physician alignment strategies and acquisitions, and capital requirements to ensure that state-of-the art facilities and medical equipment are available.

Hospitals and health systems have a variety of ways to access capital. Hospital and health system real estate assets, particularly non-core real estate assets may be overlooked as a source of capital that can be turned into liquidity. Hospitals may have medical office buildings, physician clinic facilities (perhaps attained in the acquisition of physician practices), and other ambulatory facilities that can be monetized in a variety of ways and turned into useable capital. There are ways to maintain control over use and utilization of a facility while still converting the hard real estate asset into cash.

Hospitals and health systems may invest newly monetized capital into areas such as (1) expansion, construction or renovation of facilities; (2) physician recruitment and retention; (3) affiliation transactions; or (4) equipment and technology.

Hospitals and health systems with significant real estate as assets should consider monetization transactions. As part of that process, a hospital and health system should first ask itself:

  • Does it make sense for a hospital to monetize its real estate?
  • What are the pros and cons of such monetization?
  • What real estate assets are the best candidates for monetization?
  • What monetization method should be selected and how can appropriate control be maintained?
  • How have other health systems successfully converted real estate into cash?

These are key questions for hospitals and health systems to assess as they focus on their capital needs.