The TN-based not-for-profit health system more than doubled its size this week with the acquisition of four hospitals in Mississippi and Florida.
Curae Health, Inc. CEO and President Steve Clapp spoke with HealthLeaders Media this week about the acquisition of four hospitals, what it will mean for the not-for-profit hospital chain, and the communities that these hospital serve.
Curae executives believe these small community hospitals will benefit from an affiliation with a smaller company that specializes in operating in rural settings.
The following is a lightly edited transcript.
HLM: These acquisitions will more than double the size of Curae. What is prompting this?
Clapp: When we formed Curae Health in 2014, the intent was to help identify and work with small rural hospitals such as this, and that has been the opportunity that was presented to us.
We've looked at nearly 50 hospitals over the past year, which illustrates the challenges and the desire for hospitals to align with larger institutions. With us being a nonprofit, rural-focused-only company, that has created a lot of interest.
HLM: Do these hospitals make money?
Clapp: They are profitable facilities, but it is probably CHS's place to comment on that.
HLM: How do you make this work financially?
Clapp: As a non-profit organization, we are not paying corporate federal income tax, so we get some relief there. We are able to participate in the 340B Drug Pricing Program as long as we meet the criteria.
These are cost-reduction strategies that are not available to the for-profit sector, so we are able to lower our operating expenses below what for-profit organization can realize.
The second strategy has been focusing on the revenue opportunities and the volume retention inside the community. Our company is purely focused on what services we can provide and patients we can retain in our communities.
When they leave the community for tertiary level services, we don't necessarily concern ourselves with where they go. We are trying to move to what probably and more properly could stay in the community. We are trying to develop that service and expand the outpatient side so we can reduce the outmigration.
The third thing is, we are a smaller company, so we can provide lower overhead costs as well.
HLM: Do you have economies of scale, or will these hospitals be independent of one another?
Clapp: We will be able to realize some economies of scale. We've already got an executive team, so you're not adding to the C-suite leadership. Now, it's a matter of adding staffing and management position, but we aren't going to have add a whole lot of higher ups.
HLM: Changing these hospitals to nonprofit means a loss of tax revenues for these communities. How have they responded?
Clapp: We are talking with them. There is a potential loss of some of that revenue, but some of the property will continue to pay property taxes, for instance on the medical office building. We also hope to add jobs back in, so there is a larger employee base in the community as we build up the complement of services.
We hope to offset the potential tax loss with an increase number of jobs in the local community, as well as allowing patients to stay home for more services.
If you look at the number of rural hospitals that have closed across the country, a lot of people don't want to be in that boat.
So while there is a chance that it could affect part of the property taxes, we are trying to position these things so we can keep the hospitals open longer for the community benefit. These hospitals are usually the largest employer in a community. They pay the highest wages in the market, and they are a vital piece to recruit industry in a community.
HLM: What changes will the people in these communities see at these four hospitals in the months ahead?
Clapp: Being a nonprofit, we have a responsibility to be good stewards of the assets. Part of our model is we keep the local boards in place. They will continue to have the local authority for oversight of medical staff, budget approval, credentialing, and strategic planning approval.
Our model is very integrated with the local medical staff, the local boards, to help us develop the direction for the hospital that is needed in that community.
I see it as a community partnership approach. This is the business that we are responsible for taking care of, and it requires all of our input. We're hoping that it is a more open and participatory process as we go through it.
HLM: Where does Curae get its funding?
Clapp: We were able to acquire the original hospitals from LifePoint through bank loans. We were able to refinance some debt at the end of last year to add some capital to acquire services and equipment for these hospitals.
We are working with our bank partners to grow and add the capital and financial resources we need. We also have used a real estate investment trust to help us with financing, to raise capital as part of our strategy.
HLM: What is the value of the CHS acquisitions?
Clapp: I have agreed with CHS that that is their area to comment on.
HLM: What has to happen for Curae to succeed?
Clapp: What we add to the equation is a working and living knowledge that says 'we understand small towns and the challenges they face. We can relate.' If you're not from a small town, sometimes it is hard to relate. I know that sounds odd, but from my perspective it's a big deal, because I know what it is like to live in a town of 8,000 because I have all my life.
The second thing is we have to be a disciplined operator of hospitals. We have to have a successful team that has the experience of managing multiple facilities. We are identifying the best processes to put in place. We are trying to build that management team that has the broader experience to grow this company and manage it properly.
Third, we have to perform. We have to execute on the strategies we have that we have developed with the medical staff, the management team and the local communities.
HLM: What will be the common traits of Curae hospitals?
Clapp: First and foremost, we are a rural hospital operator. We will not be in metropolitan markets. The second thing is we want to be a well-run hospital company. Our model is focused on retention of patients and recapturing the patients back into the community and building the confidence of those individuals who are seeking services outside.
To do that we have to have a good plan and know what we are and what we are not. We won't most likely ever be doing open-heart or neurosurgery in our hospitals.
But what we should be doing is outpatient cardiac, outpatient oncology, and the predominant primary care hospital services; general surgery, GI, inpatient medicine, swing beds, general psych, medical detox, etc. There is going to be a certain core set of services that are going to be developed and provided in our hospitals that maybe tertiary doesn't focus on.
You talk about a culture around a hospital company; we want to be extremely good corporate citizens and community stewards of the assets.
As a nonprofit we have an obligation to our communities and to our board that says we are a good community partner. Whether that is working with students who may want to come in, or fundraising activities, we also have a role as a community citizen.
HLM: Do you anticipate affiliations with larger health systems?
Clapp: Yes. As we go into these markets we look for the opportunities for clinical affiliations that would benefit our hospitals and the communities they serve.
HLM: How big can Curae get?
Clapp: Curae is going to have a southeastern footprint. We have had opportunities to look at hospitals outside of the region, but we realized that here's where you get the efficiencies of operations and management and the ability of sharing resources, and that would include medical staff between two hospitals that are close to each other.
But, we have some more hospitals that we are looking at. So, there is an opportunity for us to have more hospitals within the network.
John Commins is the news editor for HealthLeaders.