Hartford Business Journal

22 HARTFORDBUSINESS.COM | SEPTEMBER 2, 2024 Opinion & Commentary OTHER VOICES Why REITs aren't bad for the U.S. hospital system By Fred McKinney A merica's hospital system is severely fractured and facing a crisis, but all the finger-pointing has been in the wrong direction. Over the past several months, the U.S. hospital system has emerged as a battleground of crisis narratives, where finger-pointing at real estate investment trusts (REITs) has overshadowed the true crisis at hand. While the headlines decry the perceived evils of REITs, a deeper and more insidious problem persists: the broken reimburse- ment system that underpins our healthcare infrastructure. At the heart of the American health- care crisis lies a reimbursement system that has been struggling for decades to keep pace with the actual costs of care. Hospitals, particularly those serving underserved and low-income communities, face an untenable financial squeeze where costs rise faster than the payments they receive. Medicare, Medicaid and private insurers all play roles in this complex financial ecosystem, and they collec- tively contribute to a system that reimburses hospitals at rates that are often insufficient to cover the expenses of providing care. The shortfall was $130 billion in 2022 alone. Hospitals are constantly battling with reimbursement rates that do not reflect the true costs of care, forcing them into a precarious position where they must stretch every dollar to meet operational needs. Some hospitals are able to edge by and stay open. Regrettably, a growing number of facilities are forced to close. Indeed, 140 hospitals serving rural communities closed between 2010 and 2021, joined by urban facilities in Los Angeles, Chicago, San Antonio and Seattle. Some academics and elected officials scapegoat REITs as villains in the narrative of hospital financial distress. The sale-leaseback model, where hospitals sell their properties to REITs and then lease them back, is portrayed as a predatory financial maneuver that strips hospitals of valuable assets and burdens them with unsustainable lease obligations. However, this criticism over- looks several fundamental facts. Sale-leaseback transactions have been a proven lifeline for many hospi- tals. By freeing up significant capital tied in real estate, these transactions have enabled hospitals — urban and rural alike — to invest in critical infrastructure, modernize equipment and expand services. They give hospital operators afford- able, predictable and sustainable long-term lease payments. Far from being a financial death sentence, sale-leaseback agreements can offer a strategic financial tool that supports and expands hospital opera- tions in times of critical need. I came to this conclusion in my recent work, "An Economic Analysis of Sale Leasebacks in Healthcare." The real issue is not whether hospi- tals should or should not engage in sale-leaseback agreements, but whether the underlying reimburse- ment system allows them to thrive. To point fingers at REITs while ignoring the reimbursement structure is akin to blaming a Band-Aid for not curing a disease. It is essential to recognize that the private sector has developed innova- tive solutions that address the real problems faced by hospitals. REITs, for instance, have introduced flexible financial models that have helped keep hospitals open during times of crisis. By providing hospitals with imme- diate capital through the sale of their real estate, REITs have played a crucial role in enabling these institutions to continue serving their communities. Instead of villainizing the sale-leaseback model, we should acknowledge its role as part of a broader set of financial strategies that address the real challenges facing our hospitals. The focus must shift from criticizing these financial mechanisms to advocating for a fundamental overhaul of the reimbursement system that directly impacts hospitals' ability to function. To truly fix the American hospital system, we need to address the broken reimbursement structure that fails to support the costs of care. Reimbursement rates must be adjusted to reflect the actual costs incurred by hospitals, ensuring that they receive fair compensation for the services they provide. This involves revisiting payment models for Medicare and Medicaid, renegotiating contracts with private insurers, and implementing policies that ensure hospitals can cover their expenses. REITs have cracked the code to keep hospitals open, not by creating problems but by offering solutions in the face of systemic failures. It is time to redirect our focus from criticizing financial strategies to reforming the reimbursement mech- anisms that will ensure the long-term sustainability of our hospital system. Fred McKinney is the co-founder of BJM Solutions, a Connecti- cut-based economic consulting firm. He is the emeritus director of the People's United/M&T Bank Center for Innovation & Entrepreneurship at Quinnipiac University. EXPERT'S CORNER Deleting 'Donuts' and adding mobile: How businesses must adapt to consumer demand By Ross Nelson H ave you ever thought about the way Dunkin' Donuts — or should we say, Dunkin' — has affected your life? You may laugh, but here in New England, the brand known for bringing you donuts and coffee has become the go-to for food and beverages that go well beyond breakfast. It's not by accident — Dunkin' spent the last 10 years expanding its menu and refining its brand to reflect evolving consumer needs, only to scale it back almost as dramatically. To some, it may seem like Dunkin' missed the mark. After all, the company went from being a simple stop for donuts and coffee to the place where you could find gourmet bagel sandwiches alongside chicken biscuits. Despite the seemingly large jump, the brand's evolution repositioned it to be more competitive in the fast-food industry by meeting consumer demand. Today, after a few growing pains, Dunkin' successfully leans into its well-earned reputation for delivering tasty coffee drinks, refreshers and a simple all-day food menu with an emphasis on breakfast. Coincidentally, Dunkin's menu transformation overlapped with an industrywide shift in consumer behavior — increased demand for fast-food mobile apps. Simple changes can be a big deal As Dunkin' demonstrated, it's a business-critical step to recognize that your customers want more, or different, or better — and sometimes, all three. At Cox, we recently introduced Cox Mobile — a mobile service exclusively available to Cox internet customers. As a company steeped in business IT services and consumer broadband products, offering a mobile service was a new approach, especially when you consider the intensely competitive nature of the mobile industry. However, like Dunkin' evolving its brand strategy and food-and-beverage offerings to meet customer demand, Cox recognized that consumers craved a reliable mobile service at an affordable price, from a trusted connectivity provider. We're optimistic about our newly-es- tablished future in the mobile industry, while continuing to lean into the reality that businesses are trusting us with more and more of their IT operations. Business evolutions like Dunkin' and Cox Mobile prove that acknowledging customer needs, no matter what those may be, can drive future success. In the business world, the future can be scary. It can also be incredibly bright. The next time your local restaurant adds a new menu offering, or your gym adds more cardio classes, think about what it took for that owner/ operator to get there. It may be a bigger deal than you realize. Ross Nelson is the New England market vice president for Cox Communications. Fred McKinney Ross Nelson

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