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Why a group of hospitals is investing in affordable housing

Anjalee Khemlani
Senior Reporter

An announcement by 14 health systems on Tuesday to commit $700 million to, among other things, build affordable housing, is obviously less than Apple’s recent $2.5 billion pledge to tackle California’s housing crisis.

But it’s a large commitment by a collective of health systems to address environmental health factors known as social determinants of health (SDoH). These issues have been identified as causes of high cost of care delivered to chronic patients, such as housing or food insecurity.

The 14 health systems, part of the healthcare anchor network (HAN), are often the largest employers in their communities, and are well-positioned to see where the needs are, according to HAN director Dave Zuckerman. In addition to affordable hosuing, the hospitals will invest in small business development and other areas to improve the local economy.

‘Health systems must be at the table’

“As this important economic engine that is linked inexplicably to the future of its community, we really believe that health systems must be at the table for all of these conversations,” Zuckerman said.

“Because so much of what is driving these (poor health) outcomes is systemic inequities around race and income that are going to continue to widen disparities if they don’t come to the table.”

This is where the ongoing merger and acquisition activity the health sector has seen in recent years has come in play. But it doesn’t solve all problems, since some may not be at the scale to invest in similar efforts.

The effort by the 14 systems is focused on leveraging their assets in a new way, and how they can leverage them more powerfully to build a more inclusive and sustainable local economy, hire local residents and support local businesses, he said.

“How they can look differently at their long-term reserves...to finance new buildings and to ensure the financial soundness of their organizations,” Zuckerman said.

“For the most part, they are all traditional stocks and bonds, and traditional portfolios, and we’ve been asking the question, ‘Can we shift even a small portion of that and think about how those investments could be made in their own local communities...that would still create some economic return for them, but also have additional and important social impacts?’”

But as health care costs are top of mind for many employers and voters, could a public-facing investment in the community spark a backlash about hospital pricing?

One health system CEO, Barry Ostrowsky of RWJBarnabas Health in New Jersey, said the argument is not very convincing.

“Some of the healthiest organizations don’t run significant margins,” Ostrowsky told Yahoo Finance.

Health system revenue margins, on average, at 3%— especially for nonprofits — so it is harder to find an alternative to help curb the high cost of care that results from chronic patients visiting the emergency rooms.

An "Emergency" Sign in front of a hospital in the early evening

In addition, the providers face ongoing downward pressure from government and commercial payors.

“In order to make communities healthier, you can’t rely exclusively on clinical care,” Ostrowsky said.

“There’s no doubt that people are unhealthy 60% of the time because of certain social determinants (including) substandard housing or chronic unemployment. There aren’t any health reimbursement programs that will pay us to do that. So in the argument to reduce the price or try to make the community healthier, we’ve chosen to try to make it healthier.”

Zuckerman, meanwhile, said there could be pushback.

“The challenge with this is how do we look at our resources differently while also recognizing that there are reasons why health systems hold reserves that they are forced to do because of how our health care sector is set up,” he said.

“They have to go to the bond markets to get debt to build, so therefore they have to have investment portfolios to leverage against any bonds they take out. I think there is some sensitivity that there will be some misunderstanding of why health systems hold these dollars.”

But to reinvest 100% of their investment returns into the community would also be unrealistic, Zuckerman said.

“When you hold a retirement account, you want to diversify,” he said.

“One of the important things that health systems are grappling with is what should they do, and what should they support. We are seeing an increasing narrative around health systems being asked to do more around addressing the social needs.”

Anjalee Khemlani is a reporter at Yahoo Finance. Follow her on Twitter: @AnjKhem

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