Association of bond, market, operational, and financial factors with multi-hospital system bond issues.

Despite the growth of multi-hospital systems in the 1990s, their performance in the tax-exempt bond market has not been adequately evaluated. The purpose of this study is to compare bonds issued by multi-hospital systems to those issued by individual hospitals in terms of bond, market, operational, and financial characteristics. The study sample includes 2,078 newly issued, tax-exempt, revenue bonds between 1991 and 1997. The findings indicate that multi-hospital systems issued larger amounts of debt at a lower cost, were more likely to be insured, had higher debt service coverage and higher operating margins.     

Determinants of hospital tax-exempt debt yields: corrections for selection and simultaneous equation bias.

The cost of capital for hospitals is a topic of continuing interest as Medicare's new capital payment policy is implemented. This study examines the determinants of tax-exempt revenue bond yields, the primary source of long-term capital for hospitals. Two important methodological issues are addressed. A probit analysis estimates the probability that a hospital or system will be observed in the tax-exempt market. A selection-corrected two-stage least squares analysis allows for the simultaneous determination of bond yield and bond size. The study is based on a sample of hospitals that issued tax-exempt revenue bonds in 1982-1984, the years immediately surrounding implementation of Medicare's new payment system based on diagnosis-related groups, and an equal number of hospitals not in the market during the study period. Results suggest that hospital systems and hospitals with high occupancy rates are most likely to enter the tax-exempt revenue bond market. The yield equation suggests that hospital-specific variables may not be good predictors of the cost of capital once estimates are corrected for selection.     

Can a violation of investor trust lead to financial contagion in the market for tax-exempt hospital bonds?

Not-for-profit hospitals rely heavily on tax-exempt debt. Investor confidence in such instruments was shaken by the 1998 bankruptcy of the Allegheny Health and Education Research Foundation (AHERF), which was the largest U.S. not-for-profit failure up to that date and whose default was accompanied by claims of accounting irregularities. Such shocks can result in contagion whereby all hospitals are viewed as riskier. We test for the significance and duration of resulting contagion using an industry-specific model of interest cost determinants. Empirical tests indicate that contagion does occur, resulting in higher interest on new debt issues from other hospitals.     

U.S. hospital bond ratings in the managed care era

This study examines whether managed care organizations (MCOs) have made it more difficult for U.S. hospitals to finance capital improvements. Specifically, the study analyzes the link between MCO penetration and the ratings assigned to newly issued tax-exempt hospital bonds. Because of greater financial pressures, rating agencies may assign lower ratings to those hospitals most dependent on managed care revenues. Lower ratings in turn will require hospitals to offer higher yields to investors, thereby increasing the cost of capital improvements.     

Determinants of interest rates on tax-exempt hospital bonds

The aim of this paper is to examine the determinants of interest rates on tax-exempt hospital bonds. The results highlight the potential and actual roles of Federal and state policy in the determination of these rates. The shift to a Prospective Payment System under Medicare has subsidized the borrowing costs of some hospitals at the expense of others. The selection of underwriters by negotiation rather than by competitive bidding results in higher interest rates. The Federal tax act of 1986 raised the cost of hospital debt by encouraging bond issues to contain call features.     

Mass. authority's bond sales set record

Fueled by low interest rates and competitive construction costs, the Massachusetts Health and Educational Facilities Authority recorded its heftiest fiscal year ever in new tax-exempt bond issues for hospitals and universities. The authority issued $1.25 billion in debt during its fiscal year ended June 30. Healthcare-related bonds accounted for two-thirds of the total.     

Evaluating the underlying factors behind variable rate debt

BACKGROUND: Recent trends show a greater usage of variable rate debt among health care bond issues. In 2004, 63.4% of the total health care bonds issued were variable rate compared with 30.6% in 1995 (Fitch Ratings, 2005). PURPOSE: The purpose of this study is to gain a better understanding of the underlying factors, credit spread, issue characteristics, and issuer factors behind why hospitals and health system borrowers select variable rate debt compared with fixed rate debt. METHODOLOGY: From 2000 to 2004, this study sampled 230 newly issued tax-exempt bonds issued by acute care hospitals and health care systems that included both variable and fixed rate debt issues. Using a logistic regression model, hospitals with variable rate debt issues were assigned a value of 1, whereas hospitals with fixed rate debt issues were assigned a value of 0. FINDINGS: This study found a positive association between bond insurance and variable rate debt and a negative association between callable feature and variable rate debt. Facilities located in certificate-of-need states that possessed higher case mix acuity, earned higher profit margins, generated higher debt service coverage, and held less debt were more likely to issue variable rate debt. PRACTICE IMPLICATIONS: Overall, hospital managers and board members of hospitals possessing a strong financial performance have an interest in utilizing variable rate debt to lower their cost of capital. In addition, this outcome may also reflect that investment bankers are doing a better job in educating senior hospital management about the interest rate savings benefit of variable rate compared with fixed rate debt.     

No contest for ex-AHERF chief. Sherif Abdelhak defends himself,stating he intended to keep the healthcare system open for patients and employees

AHERF was barreling toward bankruptcy before Sherif Abdelhak allegedly raided its charitable endowments, according to prosecutors. His futile attempt to save the system not only failed, but the ensuing bankruptcy compromised the hospital markets in Pittsburgh and Philadelphia, and landed him up to 23 months in jail after pleading no contest in this courtroom.     

Debt,investment and endowment accumulation: the case of not-for-profit hospitals

Not-for-profit hospitals benefit from special tax rules that allow state authorities to issue tax-exempt bonds on their behalf, which may affect their investment and financing choices. Hospitals may respond by increasing their investment in physical assets; however, they may also engage in tax arbitrage by using the tax-exempt debt while maintaining endowment assets. The paper combines data from tax (information) returns and the annual survey of hospitals by the American Hospital Association for 1993-1996. Overall, the results are consistent with substantial tax planning by not-for-profit hospitals. Of the US$ 55.9 billion in tax-exempt liabilities of hospitals in 1996, as much as US$ 32.6 billion could have been eliminated if hospitals spent their endowments instead of borrowing. Furthermore, controlling for hospital size (in terms of revenues and operating assets), endowment assets are associated with a higher ratio of tax-exempt (or total) debt to operating assets. In contrast, endowment assets are not related to taxable debt suggesting that the effects of the endowment on borrowing are motivated by tax incentives. Investment and endowment accumulation regressions suggest that increases in debt increase both physical investment and endowment accumulation but these effects are concentrated among cash-rich hospitals for which the effects on endowment accumulation effects are larger than the effects on physical investment.     

The impact of competition among health care financing authorities on market yields and issuer interest expenses

The main source of capital for non-for-profit health care organizations is tax-exempt municipal bonds. The tax-exempt nature of this debt requires that they be issued through financing authorities, which are run by, or affiliated with, state or local government agencies. In some states, all tax-exempt health care bonds must be issued through a single financing authority, but in other states the issuing health care organization has a choice of multiple authorities. Using a Herfindahl index of issuer concentration, prior research has found that greater competition among authorities results in lower interest costs to the issuing health care organization. We pick up where this earlier study left off, examining the links between authority competition, the interest expenses to the issuer, and the yield to the market investor. Although our analysis of all hospital bonds issued between 1994 and 2002 corroborates earlier findings with regard to interest expenses to the issuing health care organization, we also find market yield is lower for statewide authorities where issuer concentration is lower. Thus, authority competition is good from the issuers' point of view, but holds no favor in the investors' eyes. On the other hand, the lower market yield associated with statewide authorities does not make its way down to the issuer in the form of lower interest costs. To help sort through this paradox, we explore our findings through interviews of executives in state issuing authorities.     

Investors' service steps in to fill void in hospital data disclosure

A new investors' information service hopes to open some new doors--those belonging to hospital chief financial officers. The service aims to provide up-to-date financial data on hospitals that have tapped the tax-exempt credit market, information that many facilities are choosing not to provide. Many investors trading in already-issued bonds say they often are forced to rely on outdated information in their decisionmaking.     

The economics of for-profit and not-for-profit hospitals

This paper examines the economics of for-profit and not-for-profit hospitals through the prism of capital acquisitions. The exercise suggests that of two hospitals that are equally efficient in producing health care, the for-profit hospital would have to charge higher prices than the not-for-profit hospital would, to break even on capital acquisitions. The reasons for this divergence are (1) the typically higher cost of equity capital that for-profit hospitals face; and (2) the income taxes they must pay. The paper recommends holding tax-exempt hospitals more formally accountable for the social obligation they shoulder, in return for their tax preference.     

AHERF files for Chapter 11. Action may precede sale of nine hospitals to Vanguard

Allegheny Health, Education and Research Foundation, one of the nation's brashest not-for-profit health systems, last week filed for Chapter 11 bankruptcy protection. The last-ditch move will allow Pittsburgh-based AHERF, which is $1.3 billion in debt, to restructure money-losing operations and pave the way for the sale of its nine Philadelphia-area hospitals. But the repercussions of the filing will be felt well beyond the state of Pennsylvania.     

Rurals using new techniques to finance long-term care

As the population of rural America ages, rural hospitals are seeing opportunities for new revenue in long-term care. To meet those needs, they are turning to tax-exempt revenue bonds, something they rarely used in the past, and private venture capital, an entirely new wrinkle.     

Rationale of inpatient care--towards a new payment system

German statutory health insurance is introducing a system of lump sum payments for hospital care in the framework of a sectorial budget. All hospital cases covered by a major regional health insurance fund (AOK Magdeburg) and completed in 1995 to 1997 (590,000 cases and 7.6 million hospital days, resp.) were analysed to find out changes in the main parameters of inpatient care. The number of hospital cases per 10,000 insured persons continues to increase even after age-adjustment. The increase was 3.1% from 1996 to 1997. Hence the objective "outpatient treatment ranks before inpatient treatment" has not been achieved. The number of hospital days per 10,000 insured patients also increased. Hence the concept of "controlled touch down" (i.e. reaching the prospectively negotiated number of hospital days exactly) has not succeeded. After taking age into account, the number of hospital days slightly and for the first time decreased in 1997 compared to 1996. The average level of hospital stay (LOS) is decreasing, but still high. The proportion of cases with hospital stays exceeding the "Length of Stay Guidelines" was more than 30% in 1997. The pattern of the three parameters (number of cases, hospital days, and LOS) indicate that hospitals manage bed occupancy rates in the first place and that the indications for inpatient treatment are getting softer. Between 1996 and 1997 there has been a 17.5% increase in the total number of cases reimbursed by lump sums. In some categories of the fee schedule the increase is considerably greater. Such changes in performance make it difficult for both contracting parties to assess the "necessary" amount of cases and procedures to be covered by lump sum payments. In a considerable proportion of cases covered by lump sum renumeration, the LOS is longer than the calculated average on which costing is based. In spite of this, however, most hospitals gain more income from lump sum payment than they would if their per diem rates were applied. The proportion of cases with the LOS exceeding the upper compensation limit is low. Between hospitals, the average LOS in the same categories of the fee schedule differs by a factor of 1.5 to 2. There is no consistent indication of adverse risk selection. If the present payment system is maintained until the end of 1999 (or even 2001 as preferred by some), German hospitals will have an opportunity to continue with their development of organisation and costing, to improve their structure of services as well as their negotiating power and- the full compensation scheme having been abandoned in favour of prospective budgets- to net rationalization profits.     

Hospital revenue cycle management and payer mix: do Medicare and Medicaid undermine hospitals' ability to generate and collect patient care revenue?

The continuing efforts of government payers to contain hospital costs have raised concerns among hospital managers that serving publicly insured patients may undermine their ability to manage the revenue cycle successfully. This study uses financial information from two sources-Medicare cost reports for all US hospitals for 2002 to 2007 and audited financial statements for all bond-issuing, not-for-profit hospitals for 2000 to 2006 to examine the relationship between hospitals' shares of Medicare and Medicaid patients and the amount of patient care revenue they generate as well as the speed with which they collect their revenue. Hospital-level fixed effects regression analysis finds that hospitals with higher Medicare and Medicaid payer mix collect somewhat higher average patient care revenues than hospitals with more privately insured and self-pay patients. Hospitals with more Medicare patients also collect on this revenue faster; serving more Medicaid patients is not associated with the speed of patient revenue collection. For hospital managers, these findings may represent good news. They suggest that, despite increases in the number of publicly insured patients served, managers have frequently been able to generate adequate amounts of patient revenue and collect it in a timely fashion.     

Distinguishing community benefits: tax exemption versus organizational legitimacy

US policymakers continue to call into question the tax-exempt status of hospitals. As nonprofit tax-exempt entities, hospitals are required by the Internal Revenue Service (IRS) to report the type and cost of community benefits they provide. Institutional theory indicates that organizations derive organizational legitimacy from conforming to the expectations of their environment. Expectations from the state and federal regulators (the IRS, state and local taxing authorities in particular) and the community require hospitals to provide community benefits to achieve legitimacy. This article examines community benefit through an institutional theory framework, which includes regulative (laws and regulation), normative (certification and accreditation), and cultural-cognitive (relationship with the community including the provision of community benefits) pillars. Considering a review of the results of a 2006 IRS study of tax-exempt hospitals, the authors propose a model of hospital community benefit behaviors that distinguishes community benefits between cost-quantifiable activities appropriate for justifying tax exemption and unquantifiable activities that only contribute to hospitals' legitimacy.     

Does Quality Improvement Work? Evaluation of the Organ Donation Breakthrough Collaborative

Objective. The Organ Donation Breakthrough Collaborative is a quality improvement initiative to encourage adoption of "best practices" for identifying potential donors and obtaining consent for deceased organ donation. We evaluate the impact of the first phase on organ donation rates.
Setting. We study donation rates in the 95 hospitals that participated in the first phase and a control group of 125 hospitals.
Design. We use a controlled pre/post design. The preperiod is the year before the start of the Collaborative (September 2002 to August 2003), the postperiod is the final 6 months of the first phase (March 2004 to August 2004).
Data. We use administrative data from the Organ Procurement and Transplantation Network to compute the conversion rate in each hospital group and time period. The conversion rate is the proportion of eligible donors who became actual donors.
Principal Findings. Preperiod conversion rates in Collaborative and control hospitals were similar: 52 and 51 percent, respectively. In the postperiod, the conversion rate increased to 60 percent among Collaborative hospitals and remained at 51 percent among control hospitals. The relative change was 8 percentage points (95 percent confidence interval: 2–13: p <.001).
Conclusions. Our findings suggest that the Breakthrough Collaborative led to an increase in donation rates at participating hospitals.     

Can cost shifting continue in a price competitive environment?

Both Medicare and Medicaid are reducing payments to hospitals, and there is widespread concern that hospitals may respond by increasing prices to privately insured patients. Theoretical models of hospital behaviour have ambiguous predictions as to whether, and under what circumstances, hospitals will shift costs to private payers. This paper extends previous theoretical models and then tests empirically using data from California for the 1983-1991 period, a time of increasingly intense price competition. Hospitals did increase their prices to private payers in response to reductions in Medicare rates; they had far smaller and generally insignificant responses to changes in Medicaid reimbursement. Hospital ownership and the competitiveness of the hospital market both affected this behaviour, but there was no significant change over time. The results suggest the need to broaden our models of hospital behaviour to 'embed' them in their local markets.     

Colorectal cancer screening, 1997-1999: role of income, insurance and policy

BACKGROUND: Receipt of age-appropriate cancer screens can lead to reduced incidence and mortality. Yet, low-income and uninsured experience barriers to screening. This paper examines colorectal cancer rates by income, racial and insured groups 1997 and 1999. These years focus on changes pre/post a 1998 policy change for Medicare beneficiaries that reduced their out-of-pocket costs for colorectal screening. METHODS: The 1997 and 1999 Behavioral Risk Factor Surveillance System (BRFSS) survey is used to examine changes in age-appropriate fecal-occult blood testing (FOBT), flexible sigmoidoscopy screens. Differences in the odds that Medicare beneficiaries, relative to private insured, receive screens pre/post 1998 are examined using multivariate logit models. RESULTS: Average rates of sigmoidoscopy increased significantly during 1997-1999 but remain below desired levels. While Medicare beneficiaries are more likely than privately insured to be screened, gaps between low- versus high-income groups in both Medicare and non-Medicare populations remain. The 1998 Medicare policy change was associated with a significant increase in the odds of screening among low-income (<$25,000) Medicare beneficiaries. CONCLUSIONS: Policy makers should consider reasons for continued low colorectal screening rates among all insured groups. Barriers such as patient perceptions and physician advice should be considered along with the vulnerability that low income and lack of insurance imposes.