Moody's: Nonprofit health systems pursuing alternative growth strategies with differing credit risk levels

Nonprofit health systems face more limited expansion opportunities in their home markets amid the ongoing stream of mergers and acquisitions, which has prompted some organizations to seek alternative growth strategies, according to a new report from Moody's Investor's Service.

The avenues of growth they are seeking include new markets, new business ventures and nontraditional partnerships, and all three of them carry different levels of credit risk, said Moody's. The ratings agency considers nontraditional partnerships the greatest risk "because they involve mastering new services beyond management's core expertise."

Meredith Moore, assistant vice president and analyst at Moody’s, gave the example of health systems operating an insurance plan.

"Over the past two decades, multiple systems have entered the health insurance business through startups or acquisitions with varying degrees of success," she said. "If successful, a health insurance product can provide a hedge against declining patient revenues, limit patient leakage to other systems and play a key role in population health strategies. However, managing a health insurance plan requires actuarial expertise in underwriting, pricing know-how, strong customer service and marketing skills, a large brokerage network and a proven ability to project usage rates."

Moody's said it expects health systems will continue launching new business ventures, such as operating an insurance plan, and will also increasingly look at new markets for growth.

Additionally, nontraditional partnerships and joint ventures will continue to allow health systems to grow with partial financial risk, according to the report. 

 

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