Obvious Business Model for RHIOs: Hybrid Between 'Commercial' Nonprofit and Charitably Supported Organization

Finding the "sustainable business model" for regional health information organizations (RHIOs) seems to be like looking for the Holy Grail these days. There is a great deal of pressure being placed on RHIOs, both internally and externally, to identify a business model built on operational self-sufficiency. However, most RHIOs have or plan to obtain a tax-exempt status as a 501 (c)(3) and must separate financial sustainability from commercial viability.

Michael Christopher and Martin Jensen from Healthcare IT Transition Group wanted to analyze financial operations and resources to help early-stage RHIO organizations as they plan and implement a successful business model. Findings from their survey of 50 RHIOs are being released in the report: Funding RHIO Startup and Financing for Life.

The report is full of financing data covering the life cycle of a RHIO, such as suggesting a trend towards diversification of revenues, confirming that providers and government are leading the financial support, and offering 16 months as a reasonable timeframe for moving from planning to production. More importantly, however, the authors address the current atmosphere of dissatisfaction with RHIO financial performance and challenge the conventional wisdom that a RHIO must fund all ordinary operations from its revenues without having to rely on contributed income to "keep the lights on."

The report recognizes the strong fee-for-service perspective of RHIO leadership and their focus on revenue sustainability. In fact, 68 percent of respondents said that they either are or plan to be self-sufficient. However, more than 80 percent in each stage of development (including 89 percent of the self-supporting mature RHIOs) said that they anticipate applying for grants and 50 percent of income remains contributed into the production period.

These contradictory findings may be explained by an analysis of the financial perspective of leadership and understanding their "accounts receivable" orientation and the recognition that a nonprofit's business model is defined by much more than its revenues. Christopher and Jensen suggest that if the business model is viewed as "the set of logical relations between trading partners which create and deliver value to the partners, then a sustainable business model is one in which partners agree that the value received is worth paying for, and at a level that covers all costs of the organization." They point out that in the case of a RHIO, one of the partners is the community-at-large and argue that most RHIOs are operating within a sustainable business model, namely that of a typical nonprofit organization serving the public good. They believe that the "current state-of-the-RHIO may be sustainable as a nonprofit entity, whereas its leaders may remain understandably uncomfortable with a financial model that is less familiar to them."

They recommend that RHIOs use earned income to leverage contributions and optimize the contributed income side of the RHIO business by recognizing the role of fund development, describing the organization in the language of service it provides to the public good and involving fundraising professionals to build a detailed case for support to more fully participate in opportunities of the rapidly growing nonprofit sector.

To obtain a copy of the full report, visit http://hittransition.com/RHIO_Survey_2006/.

Christina Thielst is a healthcare administrator and blogger (Christina's Considerations).
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