5 Reasons Why Healthcare Nonprofits Are Racing To Consolidate
By Tom Schramski, PhD, CMAA
Volume 4 Issue 15, July 18, 2017
Nonprofit healthcare organizations are undergoing their most significant evolution of the past half century. At the core are fundamental dynamics that are changing the payment for their services in the future. Many nonprofit leaders have decided their hope lies in size and the data tells the tale. Bain + Company recently reported that 16 of 21 major healthcare transactions in Q1 2017 involved nonprofit partners, an unprecedented statistic. As further evidence, VERTESS has been increasingly engaged to facilitate a variety of nonprofit affiliations, absorptions, and acquisitions in the past year.
Based on this experience, we believe the following factors are at the heart of this dramatic marketplace activity:
- Donations are the past – While donations were once the life blood of many human service and healthcare nonprofits, they have largely disappeared as a significant source of revenue for most. Competition for these diminished dollars has added to the challenge.
- Reimbursement has become increasingly complex – The combination of managed care, value-based payments, and demands for verifiable outcomes has forced nonprofits to become more sophisticated operationally. One path to sophistication is consolidation.
- Technology is required in the new nonprofit normal – Payers are demanding that providers interact with them using technology that many nonprofits can ill afford on their own. Affiliating with another nonprofit allows them to leverage their modest resources and gain access to necessary technology for billing, outcome reporting, and data analytics.
- Trumpcare is a threat – Whatever healthcare plan emerges from Congress, it is likely to impact Medicaid, which is a major source of reimbursement for most healthcare nonprofits. Merging with another nonprofit (or even for-profit) can be the best way for some nonprofits to survive in a marketplace with shrinking margins.
- Baby boomers are finally retiring – Changes in long-term leadership are a major issue for the majority of small to mid-sized healthcare nonprofits, especially when their Boards of Directors are of the same generation. Absorption or acquisition is often attractive in these cases compared to similar for-profit entities.
In our experience, each nonprofit has its unique culture and legacy that the organization seeks to retain. We believe that this mission can be maintained while creating effective partnerships and affiliations to ensure a future for needed services.
Thoughtful shopping for the right match with professional assistance can be much more than a survival proposition. It can lead to a future where the original nonprofit mission can thrive while offering great services to its customers.