Creating new sources of capital will be both a challenge and an opportunity for health systems as they manage the transition from today's health care delivery models to the health systems of the future. Nonprofit health systems' traditional sources of capital, including balance sheet reserves, cash flow from operations, philanthropy and debt, may not be sufficient for what is required for the future state. Ultimately, health systems of the future will achieve success by managing the health and wellness of a population — very different from managing the care and treatment of sickness and disease. As the health care industry evolves from a place where revenues are based on the volume of admissions, visits and procedures to one of bundled payments, performance sharing and, ultimately, capitated payments for the health of a population, the characteristics of those health systems that are successful will change from what we know today.

These characteristics or "success factors" of health systems of the future will include organizations with sufficient size to achieve economies of scale in all their operations. These organizations will be fully integrated with all care providers and health providers overseeing a community or population so that comprehensive and coordinated oversight can be managed effectively by deploying the right resources in the appropriate setting. Their culture will be one in which leading quality and service outcomes is the primary focus. Sophisticated information technology capabilities with high adoption rates throughout the organization and beyond to the community and health populations will enable these systems to operate efficiently and effectively. These system operations will be restructured to improve processes and allocate resources in a highly efficient way, resulting in an efficient cost structure. These health systems will need progressive governance and management oversight.

Managing the transition to achieve these "success factors" will require careful utilization and deployment of capital resources. As the health care delivery industry continues to undergo significant change, one major concern in deploying capital is making certain that expenditures do not result in "captured capital." One example is building a new hospital when the industry trend is to provide care in homes and non-hospital settings. The more significant challenge for many, and perhaps all, health systems today is that there may not be sufficient capital resources within health systems themselves to achieve these new "success factors." The capital resource challenge is particularly true for nonprofit health systems. Conversely, there is significant capital available and being deployed by for-profit health care companies, both publicly traded and privately owned, principally funded by private-equity firms.

As nonprofit health systems pursue developing and implementing those critical success factors, they increasingly will turn to partnering and joint venturing with for-profit companies as a source for capital and, yes, perhaps even operating competencies. There are numerous examples of progressive health systems having already partnered with for-profit companies to grow businesses to achieve greater scale and market essentiality. This has and is being done in the hospital business sector and the ambulatory surgical sector. There are likely opportunities in many other business sectors that nonprofit health systems currently operate. The challenge is to evaluate each of these businesses critically to identify those opportunities.

As health systems manage the transition to position themselves for the future, boards and management teams will need even more out-of-the-box thinking to creatively enhance their capital resources and operating competencies.

Frederick A. Hessler is managing director, Citigroup Global Markets Inc., in New York City.

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