HCR ManorCare Deal The Future Or A Risk?

Hospitals and post-acute providers have not mixed well in the past, but ProMedica Health System hopes that changes.

I keep thinking about the Welltower and ProMedica Health System acquisition of Quality Care Properties and HCR ManorCare. Given today’s valuations, ProMedica may have gotten a bit of a deal with ManorCare’s home health and hospice business. But we are still not convinced that a basically two-state hospital system will benefit from owning skilled nursing and assisted living all over the country. Will the tail wag the dog?

Yes, there are a lot of unusual alliances going on in healthcare services today, with pharmacies buying insurers, and insurers buying anything they can get their hands on if it will help lower costs. And, it will be important to try new ways to start bridging that post-acute/acute divide in healthcare delivery, where post-acute always seems to get the short end of the financial stick. But this is a big transition for ProMedica, and ManorCare is a turnaround situation. That’s tough even for the best of them.

The deal won’t close for a few months, and we will not know much about results until early 2019, and it may take at least a year after that for any real turnaround. I would like to see this joint venture as a trend-setter, but my gut says they will struggle.




2 comments on “HCR ManorCare Deal The Future Or A Risk?

  1. Steve,

    I think your “gut” is right on this. I think this will be a terrific deal for Tom DeRosa and Welltower (which REIT would not like a 8% cash on cash return from a AAA credit, irrespective of how the underlying deal performs) but a horrific deal for ProMedica who is going to find out that they still may be “catching a falling knife” in the turnaround of Manor Cares SNF business. Manor Care has been all consumed these past few years with fighting off a government investigation and struggling with financial problems with leases. That does not leave a lot of time to deal with the underlying issues that led to the inability to pay its leases in the first instance. My “gut” tells me that ProMedica will rue the day they ever heard the name Manor Care within a year or two.

    1. Well said, David, but if they rue the day they ever heard the name Manor Care, what will that say about ProMedica’s credit rating? And would Welltower ever let them get out of the leases in 2-3 years? I think not, especially since Welltower’s mantra is that Manor Care is not a skilled nursing portfolio for them, but a health system portfolio with an A+ rating.

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