Providers look to joint ventures, asset sales before tax law cuts

Modern Healthcare – Monday, September 8, 2025
By Alex Kacik and Caroline Hudson

Imminent reimbursement cuts are prompting health systems to look at selling ancillary businesses and real estate, as well as exit certain markets.

Providers have increasingly turned to divestitures and joint ventures with companies that specialize in real estate management, long-term care, home health, labs and other services. Hospitals are ramping up these strategies with the hope that increasing cash reserves and simplifying operations will help them weather federal funding reductions under the new tax law.

“Providers are battening down the hatches and looking at where the biggest return on investment is,” said Douglas Grimm, a healthcare lawyer at law firm ArentFox Schiff. “Hospitals may need to divest those businesses that are at the bottom of the pile.”

Years of historically low interest rates through the 2010s fueled health system expansion. Providers leveraged low borrowing costs to expand and buy businesses that support core acute-care and outpatient operations.

But those purchases may drag health system finances as they face supplemental Medicaid payment reductions and a potential increase in uncompensated care costs tied to the “One Big Beautiful Bill.”

As a result, health systems are reassessing core operations and distancing themselves from some services, particularly those that can be managed elsewhere without disrupting the flow of patient care, said Drew Corrigan, U.S. sector leader for healthcare at KPMG.

“I wouldn’t [say] only the distressed are doing this, but those that are really thinking about the long haul. What is our long-term trajectory and our financial planning guide looking into the future?” Corrigan said.

Asset sales and strategic partnerships, often in the form of joint ventures, can help refocus health systems’ operations and free up capital for other uses.

For instance, some providers are looking to sell real estate accumulated after years of mergers and acquisitions.

Clearwater, Florida-based BayCare is considering selling real estate tied to some of its ancillary facilities, such as independent physician offices and urgent care locations, said C. Todd Jones, chief strategy officer and chief ambulatory services officer at BayCare. The nonprofit health system can use the capital from these sales to fund its growing residency program, expand outpatient services, hire more specialists and support other essential initiatives, he said.

Other large nonprofit systems have offloaded entire hospital campuses in markets where they were not competitive.

Ascension sold Our Lady of Lourdes Memorial Hospital System last year to Guthrie Clinic. The Binghamton, New York, market was not a good fit for Ascension, which had limited resources in the area, said Amber Sims, chief strategy and growth officer at Ascension.

The St. Louis-based system also sold its Michigan hospitals, including a joint venture with Detroit-based Henry Ford Health that last year transferred ownership of eight acute-care facilities.

“There’s no longer a badge of honor around the number of hospitals you own,” Sims said. “We needed to take a closer look at how our portfolio of services will ultimately impact the health of our communities and look outside the walls of our hospitals. We needed to redefine who we were as an organization by investing in ambulatory facilities and ASCs.”

Downsizing its hospital footprint accelerated Ascension’s focus on ambulatory care, Sims said. The health system signed in June a $3.9 billion definitive acquisition agreement that would add more than 250 Amsurg ambulatory surgery centers to Ascension’s portfolio.

Short of full hospital sales, some health systems are targeting specific services to divest.

Joint venture agreements are an attractive option because they allow health systems to maintain some ownership of a service line, offering visibility into day-to-day operations and decision-making abilities, said Tyler Giesting, director of healthcare M&A at West Monroe. The agreements can also provide a needed cash infusion.

St. Louis-based SSM Health has expanded a longstanding partnership with Select Medical, which helps the system manage and operate rehabilitation facilities. Last year, SSM and Select started a joint venture to own and operate an Oklahoma rehabilitation hospital. The organizations launched their first joint venture in 2009 in the St. Louis area. Select has helped SSM broaden its recruitment reach, extend financial resources and improve care transitions, SSM Chief Financial Officer Kevin Smith said.

“If we are going into a joint venture, we can lever up capital from our balance sheet and gain expertise from a partner who has multiple years in the space,” he said.

Long-term care has also been a common joint venture and divestiture target in recent years.

Compassus took over management last year of Providence’s home-based services via a joint venture. The agreement will help the Renton, Washington-based system and the home care and hospice provider better shoulder rising costs of labor, supplies and drugs, executives said.

Edison, New Jersey-based Hackensack Meridian Health has sold long-term care facilities, consolidated behavioral health services and downsized its administrative real estate footprint over the last several years. The system continues to evaluate its strategic portfolio for opportunities to become more efficient through partnership or consolidation, Hackensack CEO Bob Garrett said.

Other health systems have decided to sell lab operations.

KPMG’s Corrigan said health systems may not want to give up control of lab services, but it’s an appropriate response to the current economic environment.

“I think they have pressures on their financial ratios and are weighing up all the things. ‘Is it critical that we own the lab business?’ Probably not,” he said.

Columbus, Ohio-based OhioHealth sold select lab services in late 2024 to Quest Diagnostics, one of the largest companies specializing in lab testing. Under the agreement, Quest handles most of OhioHealth’s outreach testing, while the health system continues to operate hospital-based and some specialty labs.

Without Quest, OhioHealth would have needed to invest in updated equipment and additional space, said Joy Bischoff, vice president of enterprise shared services at OhioHealth. Quest also has the size and infrastructure to drive economies of scale, which can lead to lower costs for patients.

“Quest has significant product offerings that we don’t have. Additionally, OhioHealth doesn’t have the capacity to manage the high volumes of tests without expanding our central laboratory, which would require significant capital investment while being unlikely to generate a big return,” Bischoff said.

She said the health system is instead funneling capital toward oncology and women’s health services.

Quest likes working with health systems because they encourage innovation and serve as a growth engine for the company as it seeks new market opportunities, said Dermot Shorten, senior vice president of strategy, ventures and M&A at Quest. He said the company is seeing more interest from academic medical centers.

Cleveland, Ohio-based University Hospitals also sold certain outreach lab services to Quest in January. Similar to the OhioHealth deal, University Hospitals continues to provide inpatient and select outpatient testing at its hospital-based labs.

University Hospitals pointed to Quest’s ability to broaden access to lab services.

Some of Quest’s other partners include Corewell Health, UPMC and NewYork-Presbyterian.

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