Venture capital is a term more likely to conjure images of Wall Street and big bucks than of a charitable, ministry-based organization. But for Ascension Health, the nation's largest not-for-profit healthcare system, venture capital is a new part of doing business.
Entering what appears to be uncharted territory for Roman Catholic healthcare systems, St. Louis-based Ascension Health has formed a venture capital subsidiary to fund technology companies that Ascension executives hope will benefit their system both operationally and financially.
"Because of our size, we often become a marketmaker or create value in a company as we deploy and help improve their product," said Ascension Chief Executive Officer Doug French. "We want to share in some of that upside."
The system plans to pump about 1% of its annual investment funds, or about $25 million per year, into the subsidiary, Ascension Health Ventures, which will hunt for technology companies that can deploy the latest technology in Ascension's 55 acute-care hospitals. Ascension also plans to invest in the technology companies themselves.
"It is our expectation that we would have a return of operational benefit but also the possibility of a funding event where equity can be liquidated to recover our investment and (create) additional funds we can use to further the ministry," said John Doyle, president of AHV and Ascension's senior vice president of clinical integration.
Ascension launched AHV early last month with little fanfare. So far, the venture capital group has invested $2.5 million in one company, Chicago-based Servicys, a provider of supply chain management systems, and earmarked funds to invest in another.
Industry sources said few Catholic health systems have launched such venture capital companies, but many have diversified their investments in similar ways.
"Individual hospitals and systems have created various opportunities to enhance the mission of their not-for-profit, mission-based entities," said the Rev. Michael Place, president and CEO of the Catholic Health Association. Catholic hospitals, he said, "don't have the capacity to go to the stock market to sell stock."
Early this year Ascension worked on getting back to basics when it sold a healthcare consulting business as part of restructuring that began when French took Ascension's helm in January. Officials said their new venture capital company supports the system's ability to provide charitable care and promote clinical excellence.
Ascension may be tearing a page from the for-profit playbook as it invests in technology firms. Starting late in 2000, Tenet Healthcare Corp., a Santa Barbara, Calif.-based for-profit hospital chain, stepped up its investments in technology companies to stay on the inside track of new products.
Ascension set up its investment arm as a limited liability corporation, which allows it to receive the same favorable tax treatment enjoyed by its parent, said Michael Peregrine, a healthcare tax lawyer with Gardner, Carton & Douglas in Chicago.
Ascension's foray into venture capital comes at a time when health systems face declining investment income, said Lisa Martin, vice president and healthcare analyst at Moody's Investors Service, a New York-based credit-rating agency.
Martin said Ascension successfully weathered a November 1999 merger that brought together St. Louis-based Daughters of Charity National Health System and Ann Arbor, Mich.-based Sisters of St. Joseph Health System to create Ascension.
In its fiscal year ended June 30, Ascension reported operating income of $45.4 million on total operating revenue of $6.9 billion, a 46% increase over operating income of $31 million on total operating revenue of $6.2 billion in fiscal 2000. In 2001, net patient revenue grew "a healthy 7%," Martin said.