MEDICAL DEBT FORGIVENESS… IS IT BAD FOR MOBS?

May 4, 2023 / Investment

Healthcare costs continue to rise in America.

The amount America spends per person on healthcare is dramatically more than other rich-world countries. It’s also unlikely to change any time soon, despite modest initiatives for more efficient spending, e.g. value based healthcare.

There are dozens of explanations for why this is, including: the structure of private and public insurance options, regulatory capture, lack of price visibility, limited price controls on Rx’s… just to name a few.

High healthcare costs leave many patients in debt. According to the Kaiser Family Foundation: “~100 million Americans who have amassed nearly $200 billion in collective medical debt — almost the size of Greece’s economy”

And not surprisingly, there is increasing legislative energy for medical debt forgiveness. In this article, we don’t aim to solve the problem, but to explore its impact on MOB investors.

Much of this debt is owed to community hospitals, who provide expensive procedures and are now looking to collect overdue fees, while charging interest.

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These community hospitals have been dealing with outstanding medical debt for years… and often increase their prices for procedures, knowing that some people cannot pay. Most of the hospitals are non-profits, and hoping to remain financially solvent. 

By comparison, only a tiny fraction is owed to the individual doctors or medical practices, who also have an MOB. There are several reasons for this including that: the majority of the revenue for in-hospital procedures goes to the hospital, not the doctors… and in-MOB revenue are with long-term patients who’ve consistently paid after prior MOB visits, and are paying for lower cost healthcare activities, e.g. examinations, which aren’t going to set back patients too far financially. 

The bottom line impact for many medical practices operating out of MOBs will be negligible. Although, if it were to happen, few doctors will be happy about it… and likely fear longer term moral hazard.

Of course, there will be some medical practices, who would be hard hit… depending on their business model, and what service line they serve (e.g. plastic surgeons doing elective surgeries might not be impacted at all).

From a MOB investor perspective, the most important thing is that the tenet, medical practice, continues to perform well financially… and pay rent on time. In our view, there is limited risk of a potential debt forgiveness impacting rent payments for the vast majority of MOBs.

POSTED BY

Ben Reinberg

Founder & CEO | Alliance Group Companies

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Ben Reinberg is Alliance Group Companies' founder and CEO.

Since 1995, Alliance Consolidated Group has acquired and invested in medical properties with net leases between $3 and $25 million across the United States. With decades of commercial real estate experience, we take pride in committing to meeting the goals of our Sellers, as we consistently and seamlessly adhere to successful closings.