Understanding the Value of Nonprofit Healthcare Organizations

While in the midst of the highest consolidation activity since 2000, some nonprofit healthcare organizations seem to be struggling with not only understanding their strategic options, but having a clear understanding of their market value as well.

  • The January 2014 sale of nonprofit, Visiting Nurse Association of Southeast Michigan Inc., for just $295K on $2.4M in net assets and $1.3M in revenue, suggests the organization was vitally unaware of their value (valuation) in the marketplace.
  • Similarly, the January 2015 news of the Visiting Nurse Association of Texas, riding three years of revenue losses, and now cutting 400 employees, one may surmise that nonprofit healthcare needs help.

Nonprofit healthcare organizations sometime believe they have limited options and value because of their nonprofit status. Often times this is absolutely not the case. Those investors, potential partners and acquirers looking to expand their footprint or add capabilities want to align themselves with providers the community respects. After all, healthcare is local. Boards of directors of nonprofits need the same strategic guideance afforded to the most sophisticated organizations. Even more so today as the options are more complicated and nuanced in today’s healthcare environment.

For nonprofit healthcare organizations and hospitals to navigate 2016, we suggest the following:

  1. Nonprofit healthcare organizations should be valued as for-profit healthcare organizations.
  2. It is the fiduciary responsibility of the board of directors to have a clear understanding of the organization’s value (valuation) and the strategic options available in today’s briskly-paced healthcare marketplace.
  3. Nonprofit healthcare organizations need to consider the transaction process in order to maximize the exit value.
  4. Specifically, nonprofit healthcare organizations should understand the alternatives to exiting the business completely, i.e. management contracts, joint ventures, and strategic alliances.

Additionally, today’s nonprofit healthcare marketplace requires national and state-level geographic knowledge as each state moves to implement full or partial pieces of the Patient Protection and Affordable Care Act. Local geo-politics aside, C-suite nonprofit leadership must play a role in sharing (and shaping) market trends (i.e, key health indicators), successes, and strategies at the board level.