Health systems with compressed margins are increasingly turning their attention to non-core ventures to enhance returns and grow their business.
In 2015, almost 75 percent of hospitals were operating just north of an 8 percent operating cash-flow margin. By 2017, about 50 percent were operating at a level below this threshold, according to data from Moody's Investors Service. The shift toward outpatient care, a growing baby boomer population and an eroding payer mix are just some of the trends tightening these margins.
"Given these trends, people are working hard just to hold the line," said Corey Palasota, a director at VMG Health. "Health systems are looking at new and innovative ways to grow without putting up any money."
Mr. Palasota joined VMG Health Managing Director Kevin McDonough to discuss how health systems can enhance their returns through nonoperating and intangible assets during a Nov. 14 session at the Becker's Hospital Review 7th Annual CEO + CFO Roundtable in Chicago.
Here are three non-core assets they discussed:
1. Trade name/trademarks. Health systems can use their trade name to gain market share by affiliating with smaller organizations seeking the benefits of the system's brand and reputation.
"Sometimes a health system will contribute capital, but oftentimes it's just leveraging their intangibles," Mr. McDonough said. "Gaining equity in a joint venture without committing any type of capital is a way to enhance returns to the system overall."
2. Certificate of need. Healthcare organizations can repurpose CONs for operating rooms or MRI units — and potentially bring in a joint venture partner — to not just unearth value for that specific CON, but also set up a platform for growth across the market.
"Some hospitals acquire CONs but keep them on the shelf as a defense, so their competitors can't get it," Mr. Palasota said. "Others have extra ORs or more licenses than they need. So now it's just a matter of deploying those out to say, 'How I can get a return on them?'"
3. Intellectual property. Mr. McDonough said healthcare organizations should also investigate how they can participate in the technological disruption occurring in the healthcare marketplace.
"Startups need brand value, data, etc., to raise capital," he said, adding that health systems can offer their EMR data and other clinical data sets for licensure agreements or equity with startup ventures. "Right now, only a handful of clinically integrated networks are doing this, but I think we'll see more going forward."
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