Those conversion blues

With the ever-increasing market penetration of capitated payment systems throughout health care markets, average payment rates for health services have dropped correspondingly. At the same time, the added competitive pressures from managed care organizations have served to increase the demand for new capital investment in information systems, lower cost facilities, and innovative modes for delivering all types of health care services. As a result, many nonprofit health care organizations have converted, or have attempted to convert, to for-profit status in an effort to gain access to the public equity capital markets. As hospitals, Blue Cross and Blue Shield organizations, and other nonprofit health care organizations across the U.S. seek to convert to for-profit status, they are finding the path is not easy. Access to capital, operating efficiencies, and the need to accelerate movement into new markets are offset by public benefit obligations, potential private inurement, and significant political cost issues. The bottom line is whether the conversion will be structured to both protect the public interest and allow the health care organization the flexibility and access to capital it needs in order to continue as a viable, competitive organization into the next millennium.