Longitude Health: The Outsourced Innovation Brain for Nonprofit Health Systems
A new health system transformation and innovation engine has emerged in late 2024 to rival the likes of General Catalyst's HATCo, cross-market health system mega mergers, and Risant Health - all of which are focused on capability-based scaling in care delivery.
Longitude Health represents a groundbreaking collaboration between four major nonprofit health systems, collectively managing nearly $60 billion in annual revenue.
This initiative, launched this month in October 2024, aims to drive innovation, efficiency, and strategic growth across the healthcare landscape.
By pooling resources and expertise and focusing acutely (haha) on nonprofit health systems, Longitude Health wants to address the most pressing challenges facing the healthcare industry today and shape its future trajectory.
Origins and Rationale for Longitude Health: Why Now?
The genesis of Longitude Health can be traced back 18 months to mid-2023 when CEOs of leading health systems - Baylor, Memorial Herman (the two of which previously tried to merge, mind you) Novant Health, and Providence - recognized the need for a collaborative approach to confront emerging industry challenges.
This strategic alliance was formed in response to several key factors:
- Need for Transformation: Post-COVID healthcare landscape changes including outpatient migration, material emergence of virtual care, and robust investment in areas like value-based care.
- Margin Squeeze: Inflationary pressures on operating costs.
- Payor Mix Dynamics: Growing divide between Medicare reimbursement, costs to treat Medicare patients, Medicare Advantage penetration, and a secular trend in slowly deteriorating payor mixes for large health systems.
- Labor: Persistent labor market challenges - nurse retention, satisfaction, career advancement, etc.
- Rising Consumerism in Healthcare: Increasing demand for consumer-centric healthcare experiences.
- Technology Shift and a new Paradigm: The rapid advancement of AI and data in healthcare settings potentially unlocking greater productivity and clinical efficacy.
Notably, Longitude Health's formation was also influenced by M&A headwinds, and past strategies - once successful - that are now no longer holding their weight in 2024.
For instance:
- The Federal Trade Commission's skepticism towards traditional hospital mergers, even across different regions, locking up M&A markets, and the ability to enter / exit markets.
- While M&A was a dominant strategy for struggling health systems in the past, many mergers have turned out to be unsuccessful, or synergies identified did not really materialize post-merger leading to integration headaches and expensive mistakes, ultimately failing to deliver expected benefits.
- Many health systems are realizing that future competitive advantages in healthcare will stem from capability-based scale rather than market-share, horizontally-driven scale - and this is one of Longitude Health's theses.
How Longitude Health Works, and its Vision
I wanted to get a bit more detail on Longitude's governance structure and how it'll operate as a separate, yet informed entity to multiple large health systems. Seems like there could be a lot of strategic priorities and narrowing those down could be tricky.
As it turns out, Longitude Health is structured as a collaborative platform owned and governed entirely by its nonprofit health system members. This is important - there is no outsider investor presence (at least at the Longitude HoldCo level).
Key features include:
- 100% ownership by participating nonprofit health systems;
- A board of directors comprised of member CEOs (four so far);
- Commitment to nonprofit status for the holding company; and
- Flexibility to invite external capital for subsidiary companies as needed (e.g., relationships with VC / PE firms and introducing them to portfolio companies to raise future rounds / provide capital where needed)
How the process for finding new investments works: Longitude Health employs a structured approach to identify and pursue strategic initiatives:
- It'll launch new companies on a cohort basis. Cohort 1 will launch during 2025.
- Chief Strategy Officers from member health systems convene to discuss potential solutions - with nothing off limits during the brainstorming process.
- Ideas are vetted through a rigorous process. Each health system provides their strategic internal priorities (and share this data with Longitude Health, which creates a black box effect - Longitude does NOT share data across health systems). From that list, the group narrows down 40 initial concepts to the 3-5 highest priorities.
- Longitude Health acts as the independent 'arbiter' and analyzes provided to validate hypotheses, maintaining strict data privacy protocols. Results are presented to member organizations on a blinded basis to demonstrate potential impact.
- Once vetted, Longitude Health then ranks and filters remaining concepts based on specific criteria: time to impact (targeting 18-24 month timeframe to materialize into tangible ROI), capital requirement of the project, and potential effect on operating income/profitability.
- Final decisions are made by the board of CEOs, ensuring alignment with overall strategic objectives. In the first cohort of discussions, Longitude Health and member organizations landed on 3 ultimate specific investment areas: specialty pharmacy, value-based specialty care, and revenue cycle management / transparency in collections.
What's interesting about this model - and something Longitude specified - was that each initiative pursued and company created won't benefit every health system equally. So although they all share in potential upside in the company or Longitude Health HoldCo, the operational impact won't be homogenous based on each health system's idiosyncratic characteristics.
There is no cookie cutter approach to innovation and driving efficiency, and so for that reason Longitude did the work upfront to understand each organization's needs from the beginning and make sure the model is compatible and flexible to work with health systems with similar characteristics.
This dynamic could still present governance problems in the future (i.e., too many cooks in the kitchen) and requires plenty of compromise among the titans in the nonprofit health system space. It requires a culture of collaboration in an environment where involved stakeholders can work together quickly and effectively.
What are the characteristics of future prospective members?
Longitude Health ideally wants to grow into 10-12 total nonprofit health systems with the following traits at a high level:
- Size and strength of balance sheet: A long-term focus and commitment is required as these investments will play out over an extended time horizon.
- Revenue base big enough to move the needle / generate operating leverage: Obviously many of these organizations are some of the largest health systems in the U.S. You need to have a critical mass of revenue / expenses so these initiatives make sense financially and move the needle for
- Health System Transformation Maturity: Has the organization demonstrated in a progressive way that they can engage in joint-venture and health system transformation type initiatives, and be a winner in those areas?
In a sense, because of the shift to capability based scale, the traits described above also fit other similar innovation / cross-market merger initiatives (Risant, Advocate) given those organizations also hold these characteristics.
I asked Longitude Health leadership how they thought about Risant and Advocate and Summa Health (reminder General Catalyst's HATCo purchased Summa earlier this year) versus the Longitude model, but their answer mostly focused on how their model was differentiated from investor participation, straying away from financial incentives in favor of long-term strategic focus.
The advantage in having all nonprofit health systems is they can focus on companies or initiatives that might not provide a clear path to financial ROI.
What's Longitude Health Targeting in Q1 2025 and Beyond? Strategic Priorities and Focus Areas
After chatting with Longitude Health leadership, and after narrowing down has identified three primary investment priorities for its initial phase:
1. Specialty Pharmacy (Longitude Rx announced in mid November)
This initiative aims to position member health systems at the forefront of next-generation therapies by:
- Developing centralized capabilities for complex processes within specialty pharmacy for member health systems;
- Enhancing data management to meet stringent FDA and manufacturer requirements;
- Improving patient access to limited-distribution drugs; and
- Streamlining payor standard compliance across member systems.
2. Value-Based Specialty Care
Recognizing the evolving landscape of value-based care and taking on risk, Longitude Health is focusing on:
- Shifting from traditional risk adjustment strategies to more comprehensive care delivery transformations;
- Emphasizing specialist interventions over primary care-centric models; and
- Developing innovative approaches to manage complex patient populations more effectively and at lower costs.
I want to double click on that second bullet briefly. Longitude Health's - and therefore, seemingly their member organizations - believe we've entered value-based care 2.0, where the primary care-based models have been usurped by specialty-care first models. For instance, a podiatry group may be much more positioned to handle total cost of care for certain member populations than a PCP could.
It's a very interesting, notable shift from the past 5 or so years of discussion in the space around value-based care and having the PCP as the quarterback. Something to keep an eye on and I'll be interested to see what Longitude Health announces in the space to also incentivize its members' participation.
3. Consumer Collections and Financial Experience
Of course, revenue cycle management and the billing process with patients creates huge frustrations, which affects health system NPS. Patients want one number, or transparent, upfront pricing - as well as an easy, accessible ability to pay for those services rendered.
To address declining patient satisfaction related to billing and financial transparency, the initiative in consumer-oriented billing & collection will aim to:
- Create a more user-friendly, app-based approach to medical billing;
- Offer upfront cost estimates and flexible financing options; and
- Streamline the entire post-discharge financial experience for patients.
Outlook for 2025: What to Expect from Longitude Health Next Year and Beyond
As Longitude Health moves into 2025 and focuses on the above areas, keep an eye on their announcements given the amount of dollars at stake for these large players:
- Launch of operating companies for the aforementioned initial three strategic priorities in Q1/1H 2025;
- Creating the next cohort / new cycle to identify the next round of priorities and initiatives in later 2025;
- Potential expansion of health system membership, with a target of 10-12 large member health systems focused on capability-based initiatives;
- Continued focus on tackling major healthcare challenges that require collaborative solutions emphasizing centralizing/bundling/aggregating core functions in growing areas of care delivery or adjacent spaces (e.g., specialty pharmacy and rising drug spend);
- Finally, Longitude Health will continue to emphasize initiatives that can demonstrate measurable impact on patient experience, quality, access, outcomes, and, of course, economics.
As Longitude Health's vision plays out, key themes will emerge around centralizing functions in key areas of growth like the opportunities outlined above. Similarly to Truveta and CivicaRx, other nonprofit health system coalitions and initiatives, buildout of capability-based scale by using cheap nonprofit health system capital should provide a key competitive advantage for Longitude Health members - assuming the founders and companies they invest in are successful.
Wrapping up, Longitude Health represents a innovative approach to healthcare collaboration, leveraging the collective strengths of leading nonprofit health systems to drive meaningful change in the industry. By focusing on capability-based scale and strategic innovation, this alliance aims to address critical challenges facing healthcare providers while positioning its members for long-term success in an evolving landscape.
As it moves into 2025, Longitude Health - alongside other health system transformation names - is poised to play a significant role in shaping the future of healthcare delivery and management in the United States.
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