Rutgers' partnership with RWJBarnabas was smart. But it could also be risky, Moody's says

RWJBarnabas
A new report from Moody's dives into the potential risks associated with Rutgers' partnership with RWJBarnabas. (RWJBarnabas)

That $1 billion partnership between Rutgers University and RWJBarnabas announced over the summer is a smart strategy, according to a report from a top ratings firm.

Namely, in an updated credit report for the university, Moody's Investors Service said the move will likely boost revenue streams for Rutgers.

But, they warned, it comes with a lot of competition in the healthcare space which can make investments in the sector potentially risky. Moody's gave a stable outlook to the university.

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“As in any significant partnership, both entities are exposed to reputational and operational risk,” according to Moody’s. “This can be more pronounced in the complex healthcare arena given the potential financial impact of changes in government funding and the insurance market.” 

The public-private partnership was announced July and will allow Rutgers and RWJBarnabas to form a jointly operated academic medical center. RWJBarnabas will make significant financial investments in Rutgers, beginning with $100 million in 2019 and continuing with $50 million each year over the next decade. 

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RWJBarnabas was born from the 2016 merger of Barnabas Healthcare and the Robert Wood Johnson Health System.

Rutgers already had a strong baseline in the healthcare market as well prior to the partnership, Susan Shaffer, vice president and senior credit officer at Moody’s, told FierceHealthcare.

The union is “a partnership with a strong entity that offers strengths they don’t necessarily have on the clinical side,” Shaffer said.

Jennifer Barr, a Moody’s analyst, told FierceHealthcare that the investment in Rutgers is an affordable deal for RWJBarnabas based on a strong financial performance of late. The system already has a lot of the crucial management and experience knowledge to join forces with the university, she said, which benefits profitability. 

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The key to navigating the increased risks and avoiding a credit downgrade? Ensuring that management experience is put to use to build an effective governance structure, according to the report. 

The joint venture will need to delineate tasks clearly between the two entities while playing to individual strengths: Rutgers’ foundation as an educational institution and RWJBarnabas’ clinical management expertise. 

“Partnerships come under even more pressure in this highly competitive, constantly changing healthcare sector,” Moody’s said.

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