By: Patrick Pilch and Steven Shill at BDO USA in the BDO Center for Healthcare Excellence & Innovation
Earlier this year, a nonprofit venture formed by a group of hospitals to reduce drug prices and boost competition broke ground. Civica Rx pledged to create 14 hospital-administered drugs this year and could be a blueprint for hospitals looking to generate alternative sources of capital.
With expense growth continuing to outpace revenue for nonprofit and public hospitals, finding new ways to address liquidity challenges and raising capital is becoming a growing trend and a business imperative for hospitals.
The following alternative financing options could provide meaningful transformational opportunities for hospitals:
B2C Value Chains
Hospitals are finding innovative ways to create value from their electronic health records (EHRs) without sacrificing patient privacy. By digitizing the back office of a hospital ecosystem, providers can partner with for-profit, tech savvy enterprises to innovate new products and solutions or profit-share while providing better care experiences and improved outcomes for patients.
Another alternative capital strategy that hospitals and health systems may find even more attractive is to calibrate their data, IP, talent and assets with legal help, experienced consultants and private investors. The resulting budded entity can be a company, fund, venture capital group or technology transfer office that manages out-licensing.
In one case, five different health systems—including Children’s Hospital of Orange County, Avera Health and Bon Secours Mercy Health—contributed their pooled assets to establish The Innovation Institute. The shared revenue generated includes proceeds from medical billing, software architecture, biomedical engineering and medical office buildings. The Institute has, to date, demonstrated success with 15 portfolio companies and revenues exceeding $300 million.
C-PACE Financing Vehicles For hospital administrators seeking to upgrade facilities under management, the C-PACE financing structure could be their answer. Thirty-three states have approved the C-PACE financing structure, which allows building owners to borrow money for energy efficiency, renewable energy and other projects and then make repayments through an assessment on their property tax bill. Funds raised through C-PACE remain with the building property, enabling long-term investments in building performance.
Reach out to us for more information about what creative capital strategy is best for your organization.