Funding RHIO Startup and Financing for Life

Funding RHIO Startup and Financing for Life:
Survey of Regional Health Information Organization Finance, 2006 Component

50 pages; 31 charts, tables and illustrations; 760 term index
Michael Christopher, principal author, Development Analyst, Healthcare IT Transition Group, and Martin Jensen, Chief Analyst, Healthcare IT Transition Group

U.S. RHIOs reported on financial information, stakeholder leadership and financial participation over the lifecycle of their organizations, from startup through a transitional period and on into the mature production stage. The report discusses financial leadership/management, as well as contributed and earned revenue participants and methodologies, at each lifecycle stage. Respondents reported on the involvement of 32 specific stakeholder entities encompassing nine stakeholder classes including Government, Providers, Health Plans and Vendors. The survey was distributed to a list of 20,000 health IT professionals in order to sample new and unknown RHIO projects, as well as those known to the field.

Nearly half of respondents self-identified as being at the startup stage, 22% were in transition, and 30% in production. The majority of respondents are operating as nonprofit organizations; only 10% indicated that they were not. The researchers' analysis indicates that the leading participants in financial leadership are from the government and provider sectors, followed by health plans and vendors.

Government involvement seems actually to increase as RHIOs reach maturity, rather than decline. The report includes detailed responses regarding stakeholder involvement in financial planning and management, and in providing contributed income (grants), earned income and loans.

A key finding was an ongoing reliance on grants and/or other forms of contributed income as the organizations mature. While 68% said that they either are or plan to be self-sufficient, more than 80% in each stage of development said that they anticipate applying for grants. Only 44% of RHIOs that self-identified as being in “mature production,” the most advanced stage of six self-identified stages of development, said that they had achieved operational self-sufficiency. Nearly 90% of the self-supporting mature RHIOs said that they still anticipate applying for grants. The report discusses an explanation for this seeming inconsistency.

The report includes details on income percentages from contributed income, earned income and loans and investor proceeds. In the startup stage, more than 70% of RHIO income, on average, comes from grants and other forms of contributed income. This declines somewhat by the production stage. The report describes the percentages of membership payments vs. transaction fees and other earned revenues, and discusses a trend towards diversification, and list the innovative revenues pursued by some respondents.

A common assertion, that RHIOs have not yet found a business model, is more an issue of familiarity than of fact. While the emerging profile of the RHIOs surveyed does not represent that of a commercial enterprise or fee-based nonprofit healthcare provider organization, it closely resembles other established business models, which the report discusses in great detail. Another notion, that the way RHIOs are now operating is unsustainable, may also be less compelling once this new business model is understood and applied. External references are used to show that the resources which sustain such organizations are not only available, but are growing at a substantial rate.

The data collected in this survey and others are supportive of a recognition that, at the current stage in the build-out of a national health information infrastructure, RHIOs represent a public good and are appropriately being supported through public and private grants and in-kind contributions. The data suggest that, while there is movement toward operational self-sufficiency, it is prudent to expect that as much as one-third of total RHIO revenues will continue to come from government grants and philanthropy, perhaps into the foreseeable future. This is consistent with other non-profit organizations which supplement operational revenues with contributed funds to leverage increased capacity and expansion of services.

The report offers evidence that current RHIO practices are sustainable under the business model identified, provided that strategies are adopted to optimize certain operational activities. The report provides a section titled "Analysis and Strategies" that speaks prescriptively of how RHIOs may take advantage of the business model identified by our findings.

From the Table of Contents:

Executive Summary
 
The Survey

   Description of the Survey
      Purpose
      Survey Instrument
      Respondents
 
   Findings
      1. Lifecycle: From Startup to Production
      2. RHIO Staffing: Employee vs. Contractor Preference
      3. Stakeholder Leadership: Government and Hospitals
      4. Governance by the Charitable Organization Model
      5. Commercial vs. Non-commercial Perspectives: Sustainability Emerges
      6. Ongoing Reliance on Contributions
      7. Sources of Contributed Income
      8. Sources of Earned Income
      9. Conversion of Donors to Customers
      10. Other Earned Income: Diversification
      12. Technology Challenges Drive the Quest for Capital
      13. RHIO Services
 
Analysis and Strategies

   Understanding the RHIO Business Model
      The Importance of a Business Model
      Footprints of a Business Model
      Operational Self-Sufficiency
      Little Resemblance to the Healthcare Business
      Review of Nonprofit Sector Finance
      Competition
      A RHIO Taxonomy
 
   Putting the RHIO Business Model to Work
      Ending the “One RHIO” Myth
      Embracing a Charitably-Supported NPO Business Model
      A Case of a Missing Paradigm
      Or a Case of “Once Burned, Twice Shy”
      Leveraging Sustainability
      A Dual Strategy
      A Top-Down Proposition
      The Fundraising Operation
      The Case for Support
      Skilled Personnel
      Conclusion

Appendices
      Startup Financial Leadership Detail
      Transition Financial Leadership Detail
      Production Financial Leadership Detail
      Startup Income Sources Detail
      Transition Income Sources Detail
      Production Income Sources Detail