Acquiring financially struggling hospitals is a high-stakes endeavor that many health systems approach with optimism, but few execute successfully. Misaligned strategies, insufficient capital investment and underestimating market dynamics often derail turnaround efforts.
Steve Aleman, CFO of Ontario, Calif.-based Prime Healthcare, recently joined the Becker's podcast to discuss the keys to transforming struggling hospitals into thriving community assets and why some systems fail to achieve their hospital turnaround goals.
Editor's note: Responses were lightly edited for clarity and length.
Question: Where are Prime's biggest growth opportunities over the next 12-24 months?
Steve Aleman: I believe we're uniquely positioned in 2025 to drive significant strategic revenue growth, combined with cost reductions and targeted capital deployment. These goals have always been a priority for Prime, but as we look to the next 12 to 24 months, the announced acquisition of an integrated healthcare system in Illinois positions us to deliver on these objectives and drive unprecedented growth.
Prime has a proven track record of improving operations at acquired hospitals. We focus selectively on underperforming facilities where we believe we can elevate EBITDA margins, bringing them in line with our mature hospitals. Our approach includes implementing critical clinical protocols and cost controls that enhance patient care while reducing expenses. When needed, we renegotiate managed care contracts to optimize financial performance.
A key priority is improving ER volume, often by improving wait times. We begin implementing our strategies on the first day of an acquisition — or, where possible, even before the acquisition closes. Additionally, we often introduce new service lines to better meet the community's needs. In most cases, we also increase capital expenditures in the first year following an acquisition to fund essential improvements, including emergency room renovations and general upgrades.
We believe this strategy positions us for sustainable revenue streams and profitability, even in an environment where hospital operators face increasing financial distress. Our operating model typically improves profitability margins at acquired facilities, aligning them with those of our mature hospitals.
While transformational change and growth are never easy, everyone at Prime is excited about continuing our successful track record of turning around underperforming facilities. Our goal is to secure these hospitals as vital community assets for generations to come.
From a growth perspective, we're leveraging every available lever — strategic revenue growth, cost reductions, and capital deployment — to drive this transformation. We're confident that, uniquely positioned as we are, we can execute on these goals and make 2025 a milestone year for Prime.
Q: Prime has a proven track record of turning around financially struggling hospitals. From your perspective, what do some hospital operators get wrong when taking over financially struggling facilities? What does Prime get right?
SA: I think it all comes down to growing in line with what you do best. What does that mean? It means understanding the type of hospitals you operate, knowing your operating playbook, and evaluating potential acquisition opportunities against that playbook.
Over the last three and a half years, we've assessed many acquisition opportunities. During this time, Prime has been very strategic in evaluating the value creation opportunities of these potential acquisitions. In the end, we passed on a lot of them for various reasons and respective challenges. However, the pending acquisition of the Ascension facilities checked many of the boxes that align with Prime's acquisition criteria. In fact, it had several positive attributes that other opportunities lacked.
For example, this acquisition aligns with Prime's strategy for entering new markets by providing a market cluster presence. The facilities offer material vertical and horizontal service lines, and all have strong patient volumes throughout the system. While they are turnaround facilities, several already demonstrate positive EBITDA and operating performance and offer a material opportunity to reduce costs in a way that's compatible with Prime's operating playbook, among other advantages.
So, an acquisition needs to be a fit with your operating playbook and you need to make capital investments right out of the gate. I think this is where some systems struggle during integration. Issues often stem from an ill fit with the operating playbook, misunderstanding market dynamics like supplemental payment programs, challenges with payers, or difficulties in building patient volume. Volume is particularly hard to grow and takes time, if it's achievable at all.
Prime's approach prioritizes immediate capital investment. Many turnaround facilities have struggled due to management turnover or lack of capital investment, resulting in inefficiencies. Prime tackles these challenges head-on, addressing inefficiencies and system issues upfront. For instance, at St. Francis Medical Center in Southern California, which we view as a case study in diligence, integration and transformation, we made substantial upfront investments. Even before reopening, we introduced a new EHR system, which allowed us to hit the ground running on day one. The result? A facility that emerged from bankruptcy to once again become a cherished and important community asset.
That same approach will guide us with this acquisition. We are confident in our diligence and integration processes. This is a sizable acquisition, but Prime has a proven track record and a strong integration playbook. We're fully prepared to handle a large transaction involving multiple facilities and communities in the Chicago market. We’re excited about the turnaround we anticipate in 2025 and 2026. Ultimately, success requires alignment with the company's playbook and upfront capital investment.