Health systems are banding together to roll out new corporate ventures like Longitude Health that could give providers a financial boost and ease industry pain points.
Four nonprofit health systems on Tuesday launched Longitude Health, which executives billed as a way for providers to pool financial and intellectual resources to improve care delivery, enhance the patient experience and expand access to care. The for-profit company represents providers’ efforts to expand beyond healthcare delivery through new businesses.
Related: 4 nonprofit health systems launch Longitude Health
"I would welcome health systems that say, 'We are hoping to create a business that not only solves retractable problems but also makes money that we can use to reinvest in the business,'" said Matt Cybulsky, who leads the healthcare artificial intelligence, value-based care and product innovation practice at LBMC, a consultancy.
Here’s what to know about health system-backed companies.
What other companies have health systems formed?
Several health systems launched the nonprofit company Civica in January 2018 to try to stabilize the supply of widely used inpatient medications. Initially, Civica subcontracted with drug manufacturers to produce sterile injectables and other generic drugs. This year, the company began making test manufacturing runs of its own products, such as insulin, at its manufacturing plant in Richmond, Virginia, which is pending Food and Drug Administration approval.
Kaiser Permanente officially formed Risant Health in April. The Oakland, California-based integrated health system said it created Risant to develop a national value-based care network. The nonprofit company has acquired Danville, Pennsylvania-based Geisinger Health and signed a definitive agreement in June to acquire Cone Health in Greensboro, North Carolina.
In 2021, more than a dozen health systems created Truveta, a nonprofit company that aggregates and de-identifies healthcare data to propel research.
In addition to these initiatives, many health systems have started internal venture funds and business incubators, which typically are for-profit entities.
Why are health systems diversifying?
Health systems often invest outside of their core operations to tackle broader industry issues — especially those where they say the federal government isn't stepping in.
Through their companies, providers have focused on sectors of the industry where Congress has been too slow to act, health system executives said. If Congress does intervene, federal legislation is often not finely tuned, they said.
That is in part why health system leaders are having more productive and collaborative dialogues than they've had in the past, said Dan Liljenquist, chief strategy officer at Intermountain Healthcare and Civica board chair. The Salt Lake City-based health system is a Civica founding member.
“Direct intervention in markets that traditionally have been ancillary to what we do has become a necessity," Liljenquist said. "As good as the government is, they are ill-equipped to do this type of change in healthcare.”
Health system CEOs who make up the Longitude board say they need partners to efficiently and effectively act on broader issues like access to complex drugs, care coordination strategies and a simplified billing process.
“The health systems that are diversifying into companies such as Longitude, Risant, Truveta and Civica are doing so to improve healthcare," said Kevin Holloran, senior director at credit ratings agency Fitch Ratings. "That is a win for the industry and for the population.”
What's the financial upside?
If health system-led companies like Longitude are successful, they could improve the founders' finances, industry observers said.
Take the rapidly growing population covered by Medicare Advantage plans. Many of those plans pay providers a fixed amount per patient per month. If health system collaborators figure out how to better manage patients as they are discharged from the hospital to their homes, they could boost profits by reducing hospital readmissions.
Some providers have created business incubators, where they have an ownership stake in a startup they helped develop. Health systems can make a return on their investment when a startup is sold.
“If these organizations do end up acting like startups, then the altruistic capital expenditures become investments that could potentially see multiples in returns over time," Holloran said.
What's next for these companies?
Industry observers said they expect the number of health system-backed companies to increase as providers keep looking to shape the industry through collaboration, rather than relying on state or federal policy.
"There's a realization from healthcare leaders that no one is showing up to fix these problems, and we are probably best equipped to fix them," Liljenquist said.
Existing companies are also expected to grow.
Longitude executives believe its operating companies could start showing results within the next two years. Executives hope to bring more health systems into the venture during that time.
Civica is ramping up production at its plant in Virginia and plans to add more drugs to its manufacturing portfolio. The company plans to produce more than three dozen generic sterile injectable medications used for emergency room care, intensive care, surgeries and serious illnesses.
Risant looks to acquire more health systems, and Truveta seeks to add to its network of 30 health system members to bolster its data analysis.
