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Finding unconventional sources of capital in the face of revenue pressures

There are a number of strategies health systems can employ to maximize their already-existing assets, from property to data.

Jeff Lagasse, Associate Editor

Managing the finances of a hospital or health system can be a challenge even in the most stable of environments, but the past few years have seen complicating factors: Changes in technology, retail clinics, telehealth and the rise of value-based care are all altering the landscape, and it can be tough to keep up.

Luckily, health systems can be creative in finding ways to unlock unconventional sources of capital. This capital can be poured back into the system to make needed care improvements and other investments, which have important revenue implications, particularly as reimbursement is increasingly tied to value.

Venson Wallin, CPA, managing director and national healthcare compliance and regulatory leader at The BDO Center for Healthcare Excellence and Innovation, said there are three strategies health systems can leverage now to tap into hidden capital. Whether large or small, healthcare organizations across the spectrum can take advantage of these opportunities -- and some may have to if mounting revenue challenges persist.


The commercial property-assessed clean energy model is a mechanism for financing energy efficiency and renewable energy improvements on private property. C-PACE programs allow healthcare organizations, as well as other entities, to fund the up-front cost of energy
Improvements and other initiatives on commercial and residential properties, which are paid back over time by the property owners.

"The hospital has property that they are looking to renovate or improve or expand, and the C-PACE provides the financing for them to be able to accomplish that," Wallin said.

Property owners who voluntarily choose to participate in a C-PACE program repay their improvement costs over a set time period -- typically 10 to 20 years -- through property assessments, which are secured by the property itself and paid as an addition to the owners' property tax bills. Nonpayment generally results in the same set of repercussions as the failure to pay any other portion of a property tax bill.

One example of a health system utilizing this approach is Beaumont Health in Michigan, which used C-PACE funding to upgrade its existing assets. It used the money to inch its ambulatory care away from the inpatient side of the equation and more toward outpatient care, which is a current trend in the industry. These efforts were funded using C-PACE money.

C-PACE is currently a viable option in 33 states, according to Wallin, which means that even large, regional health systems that encompass many states can likely take advantage.

A PACE assessment is a debt of property, meaning the debt is tied to the property as opposed to the property owner, so the repayment obligation may transfer with property ownership depending on state legislation. This eliminates a key disincentive to investing in improvements, since many property owners are hesitant to make property improvements if they think they may not stay in the property long enough for the resulting savings to cover the upfront costs.


"B2C" stands for "business to consumer," and in this context, such value chains can help health systems create value and drive innovation using their existing data and property.

"That's where you can basically digitize your back office operations and partner with a tech company or similar company to create a new digital product or service that enables you to have better care experiences," said Wallin.

An example of this in action is St. Joseph's Healthcare, which works with patients' electronic health records to reference non-medical health purchases that address patients' individual needs. It developed partnerships with companies such as Lyft, Uber and Amazon to assist in things such as patient transportation and food delivery.

"It really helps from a prevention and patient care perspective," said Wallin. "You're making sure they get what they need on a timely basis and can do therapies at home to prevent any worsening of a patient condition."

That's the digital B2C value chain. For an example of an effective physical value chain, one need look no further than Beaumont, which owns a mall campus adjacent to its main facility and is planning to develop that property commercially. In this way, the emphasis is further shifting from inpatient to outpatient care.

"They need to be able to compete with others who are coming into the market from an ambulatory care perspective," Wallin said. "The mall enables when to directly compete with outpatient clinics and generates additional revenue. Before, the property may have been sitting vacant and not generating any revenue."

With the shift to outpatient care, much of a hospital's footprint is no longer needed, so hospitals are increasingly able to free up some space within the system.

"The more you can improve your patient quality, the more you can be a winner in the whole value-based care arena," said Wallin. "If you can show you're innovative in working with other partners to shore up the system and make it better -- not only better quality but more convenient on the part of your patients -- that's where you're going to capture much more market share."


The calibration of data, IP, talent and assets can create opportunities for innovation across the entire health ecosystem, according to Wallin. Many health systems, however, are not mining their data as well as they could be. There are many revenue opportunities around the data, and organizations can use the data to innovate and ultimately create new services and revenue sources.

"It also helps you identify services you need to focus on," said Wallin. "For example, seasonally, when does the flu pick up in that particular market? When should you be stocking up on vaccines? You have the data to be able to determine that, and be at the forefront and market the fact that you're the place to go for those types of vaccinations."

In addition to being revenue generators, these pooled asset strategies, as they're known, also push innovation. Health systems employing the approach are branded as being innovators that improve clinical quality and patient care, and encourages patients to take an active role in their own health.

"There are myriad opportunities out there to generate revenue," he said. "Health systems can be innovative on their own as well, in thinking, 'I've got a lot of data, a lot of unused property. How can I put that to use to improve our revenue, and better yet, improve the overall health of our community?'"

Twitter: @JELagasse

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