In-House Expertise Lacking at Health Care Funds

Tight budgets and small internal teams cause health and hospital systems to rely on outside consultants and OCIOs, according to Cerulli Associates.

Many health and hospital organizations currently have “underdeveloped” internal investment capabilities, Cerulli Associates has found.

On average, health systems have just three in-house investment professionals, as of the second quarter of 2015.

Large organizations—hospitals managing $10 billion or more—might have a “well-established and robust” team. However, smaller systems may rely on a CFO rather than a traditional investment committee.

“Given that a CFO’s primary objective is to maintain the overall financial well-being of the organization, the investment portion can sometimes be secondary,” the report said.

Health organizations surveyed said they intended to add in-house investment staff in the next one to two years. However, Cerulli noted that hiring additional staff is difficult for many hospitals because of shrinking operating margins brought on by the Affordable Care Act.

As a result, these health organizations have turned to consultants and outsourced-CIOs (OCIOs), which can be seen as a cheaper alternative to building an internal team. According to Cerulli, 85% of health and hospital systems used consultants in some capacity.

Half of those surveyed said they used consultants because of limited in-house investment resources. Other reasons cited included a desire for a more efficient investment process—for example, saving money by using an OCIO instead of managing in-house—and better access to asset managers.

The majority (69%) of organizations said they utilized strictly traditional consulting services, while 16% employed at least some discretionary services. Just 8% relied entirely on an OCIO provider.

Those who did choose to outsource all investment decisions said they believed it was a more effective way to manage assets.

Related: Liquidity Is Top Concern for Health Care Funds