It doesn't have a single investor or share of stock to offer. But that hasn't hindered an aggressive initiative by one California not-for-profit healthcare system to boost "shareholder value."
Burbank, Calif.-based UniHealth America considers residents of the local communities it serves as shareholders. It would be irresponsible not to create additional value for the community, contended Dennis Strum, the system's senior vice president for corporate development.
Three years ago, UniHealth instituted a process for continuously reviewing and monitoring the value of its nine hospitals, six medical groups, two health plans and other lines of business within the integrated system. It defines each of these businesses as an asset.
The asset-evaluation process sprang from a directive by the strategic planning committee of UniHealth's 14-member board. "The board looked at it as their responsibility to evaluate the ongoing productivity of our assets," Strum explained.
American corporations strive to increase asset values as part of their fiscal duty to shareholders. Investor-owned hospitals also look to add value through asset efficiencies. But the concept remains foreign to many not-for-profit healthcare providers.
"There was really no model out there," Strum said. So UniHealth invented one.
The original version, which incorporated measures of return-on-investment and return-on-asset, provided "a good first-phase exercise, (but) it really didn't lead to a lot of conclusions," he admitted.
The new, improved version allows UniHealth to determine a baseline value for every UniHealth subsidiary and to establish a goal for increasing the value of each asset. The analysis enables board members and administrators to understand the financial contribution of each asset to the corporation's overall value. "You have to look at the interrelationship of assets," Strum said.
Strum works closely with UniHealth's chief financial officer in conducting the asset reviews. The board also participates.
Briefly, here's how the model works: First, a shareholder-value analysis is conducted to establish a baseline value for an asset. "The whole valuation is based on present value of future cash flow," Strum explained.
Under the formula, UniHealth starts with the capital value of an asset, adds cash and marketable securities, deducts the market value of any debt and arrives at a projected shareholder value.
Then, UniHealth monitors events, called "trigger points," that could change the value of the asset. The triggers may be operational, market-based, regulatory or wild cards (an earthquake, for instance).
The next step is an "options analysis," which requires UniHealth to examine alternatives it might pursue if a trigger point occurs. Specifically, UniHealth might decide to mitigate the risk, enhance its value, divest or pursue a joint venture.
If a trigger occurs, "we drill down," Strum said. That's when UniHealth takes a closer look at the options developed and makes a specific recommendation. The options are assessed based on shareholder value, strategic benefit and organizational personality.
Since the process has been in place, three assets have reached trigger points, Strum said. One was CliniShare, a for-profit subsidiary that provides ambulatory care, home healthcare and other pre- and post-hospital services.
CliniShare set off a trigger because its value, instead of increasing, was flat and likely to remain so. The company could have continued with business as usual and would have posted a profit, but over time its value may have been diluted, Strum said.
UniHealth evaluated four options: splitting up CliniShare and selling the pieces, selling the entire company, taking it public or investing more money in specific product lines. Ultimately, the strategic planning committee decided to invest additional capital into the company, preparing CliniShare to pursue an acquisition program. It was a strategic and economic decision, Strum said.
In April UniHealth completed its second round of asset reviews in three years. It took seven months to review the system's nearly two dozen assets.
UniHealth will continue to watch for triggers and follow up on a continuous basis. For certain assets, the reviews are updated monthly.
Strum wouldn't disclose the actual increase in shareholder value UniHealth has achieved or any projected gains. But he asserted that the process is paying off.
"There has been a definite increase in shareholder value, and the targets for the future are substantial," he said.
According to MODERN HEALTHCARE's 1995 Multi-unit Providers Survey, UniHealth recorded $37.1 million of net income on net patient revenues of $839.6 million in 1994 and had $1.6 billion in total assets.
`There has been a definite increase in shareholder value.'