In several of our courses we have covered the trend toward hospitals entering nontraditional businesses such as health insurance or retail operations as a means to absorb the impact of value-based reimbursement. Several of our experts have discussed mechanisms for such businesses: collaboration with existing companies, joint ventures with varying degrees of control, acquisition of existing businesses or building one or more businesses from scratch.
Moody’s Investors Service recently evaluated the credit impact of nontraditional partnerships. Its Special Outlook provided background on nontraditional partnerships. A summary appears here.
Nontraditional partners diversify the range of services healthcare systems provide.
Nontraditional partnerships are most appealing to larger healthcare systems with multiple campuses and a regional or multi-state presence because they have the management expertise, critical mass and financial resources to manage the risks.
“Healthcare systems often use nontraditional partnerships to gain expertise in different areas along the care continuum or to help the organization enter new lines of business outside the systems’ core patient care expertise.” (Moody’s Special Outlook, May 2016) Hospitals manage or oversee management for a range of services such as patient care management and coordinating payments for such services. Examples include relationships with skilled nursing, rehabilitation facilities and other providers of post- acute care.
The obvious nontraditional partnership among large health systems is health insurance. Moody’s cites general examples of the types of partnerships:
- healthcare systems starting new insurance companies, which are typically small at the outset
- healthcare systems purchasing existing companies, which can be much larger
- healthcare systems participating in narrow networks
The rationale for taking on a health insurance capability is multi-faceted. It is seen as a way to:
- Control costs
- Diversify revenues
- Efficiently track and measure patient outcomes
Moody’s analysts noted, “Over the next several years, we expect a growing number of healthcare systems to enter the commercial health insurance business, seeking to improve care management and gain market share.”
In addition to health insurance, health systems are taking on “direct to employer” services . . . “a corollary to other population health strategies.” Typically these nontraditional partnership contracts are with large companies to provide a variety of services including on-site clinics, nurse hotlines and health screenings.
The strategy behind the “direct to employee” services focuses on engendering loyalty among patients and companies purchasing health care on behalf of their employees—creating relationships that generate future business.
Next week, we will cover Moody’s assessment of ownership structure and types of risks, and strategic factors for evaluating the credit impact of a given nontraditional partnership..
(Source: Hospitals Look to Nontraditional Partnerships to Diversify Operations, Moody’s Investors Service Sector in Depth, May 2016)
We extend a special thank you to Moody’s Investors Service for allowing iProtean to share its Special Outlook with our subscribers.
iProtean subscribers, the advanced Mission & Strategy course Beyond Payment Changes: Disruptors of Our Health System, featuring Marian Jennings, Dan Grauman and Jim Rice, is in your library. Our experts discuss the disruptor/payment change link, changes driving disruption and preparing for demand destruction.
Coming soon, Governance in an Era of Population Health, featuring Jim Rice, Karma Bass and Marian Jennings.
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