Nonprofits Weigh Benefits of Buyer Joint Ventures
In a new era of tighter regulation and smaller margins, Burgdorfer says the operational differences between for-profit and nonprofit hospitals also "has narrowed dramatically."
"Nonprofit hospital companies are definitely operating more like a for-profit company and for-profit companies over the last 20 years have been trying hard to improve quality and the relationships with the communities they serve," he says. "A lot of experts today would argue—and there is a lot of truth in their argument—that there isn't a lot of difference between the two."
"However the fundamental differences remain intact. They have different sources of capital that are backing them. And there is an inherent need to work together and to have access to both debt capital, which has historically backed the nonprofit sector and equity capital which has historically been a large source of capital for the for-profit hospitals. It is wise for them to see the inherent strength in coming together for these joint ventures."
A sign of this warming trend, Burgdorfer says, is the growing popularity of the buyer joint venture, in which the nonprofit hospital sells a majority ownership to a for-profit partner, while still retaining a minority interest that includes an active role in hospital governance.
BJVs allow non-profit and for-profit hospitals to combine and tap their traditional strengths. For non-profit hospitals that means maintaining clinical services, community relations, and an institutional reputation. The for-profit partners offer access to capital and business management. While the BJV means that the new health system changes to a for-profit entity, the partnership continues to operate under nonprofit principles that include access to charity care.
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