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.     

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 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.     

The decision process used for hospital bond rating--and its implications.

Investigation of the process of hospital bond rating related the ratings assigned by Moody's and Standard and Poors to indicators of hospital financial condition (such as debt per bed and peak debt coverage), institutional factors (including size, occupancy, and local market competition), indenture provisions (such as reserves), and contextual factors. The criteria used by Moody's and Standard and Poors to rate hospital bonds were revealed to be similar, but not identical. Criteria used in the bond rating process have several important implications: the rating approach provides strong financial incentives for increases in hospital size and complexity, for example, and hospitals that rely on extensive amounts of public financing appear to be penalized in the rating process.     

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.     

The hospital bond market and the AHERF bankruptcy

An analysis of hospital, tax-exempt bonds issued before and after the Allegheny Health, Education, and Research Foundation (AHERF) bankruptcy demonstrated that despite the decline in market rates for tax-exempt securities in the post period, bonds issued by hospitals and systems carried higher coupon rates than they did in the pre period. There was a significant decline in the proportion of hospital/system bonds that were insured from the pre to the post period. Bond insurance firms tightened their credit criteria after the bankruptcy, which may explain, in part, why the proportion of insured bonds declined. We conclude that hospital bonds are now viewed as riskier instruments than they were prior to the AHERF bankruptcy. This is reflected in higher coupon rates for both insured and uninsured bonds and fewer insured bond issues. This decline in hospital creditworthiness comes at a time when many hospitals need to replace aging assets and acquire new technologies in response to increased inpatient utilization.     

An examination of contemporary financing practices and the global financial crisis on nonprofit multi-hospital health systems

This study examines the impact of the 2008 global financial crisis on large US nonprofit health systems. We proceed from an analysis of the contemporary capital financing practices of 25 of the nation's largest nonprofit hospitals and health systems. We find that these institutions relied on operating cash flows, public issues of insured variable rate debt, and accumulated investment to meet their capital financing needs. The combined use of these three financial instruments provided these organizations with $22.4 billion of long-term capital at favorable terms and the lowest interest rates. Our analysis further indicates that the extensive utilization of bond insurance, auction rate debt, and interest rate derivatives created significant risk exposures for these health systems. These risks were realized by the broader global financial crisis of 2008. Findings indicate these health systems incurred large losses from the early retirement of their variable rate debt. In addition, many organizations were forced to post nearly $1 billion of liquid collateral due to the falling values of their interest rate derivatives. Finally, the investment portfolios of these large nonprofit health systems suffered millions of dollars of unrealized capital losses, which may minimize their ability to finance future capital investment requirements.     

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.     

Determinants of hospital bad debt: multivariate statistical analysis.

Although the issue of uncompensated care (bad debt plus charity care) has been actively debated in the public arena, there has been little discussion of the bad debt issue alone. This issue is important since issues of bad debt, charity care and uncompensated care are significantly different from each other. Based on 1992 State of Missouri data, the results of our study indicate that more efficient hospitals (measured by occupancy rate), hospitals with more patients covered by prospective payment systems (measured by Medicare discharges), and for-profit hospitals incurred significantly less bad debt cost than other hospitals. However, the difference in bad debt between for-profit hospitals and not-for-profit hospitals is dissipated when using a multivariate statistical model. In addition, this study also reveals that hospitals which provide more charity care have the lowest bad debt costs. Policy implications are also discussed.     

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.     

Factors affecting charity care and bad debt charges in Washington hospitals

Uncompensated care has become a major issue in hospital finance as the number of uninsured persons has increased and hospital revenues have declined. Uncompensated care charges have two components--charity care and bad debt--that are distinct conceptually but often are commingled in hospital accounting practice. Data on charges assigned to charity care and bad debt in 1987 for 82 short-stay hospitals in Washington were merged with data from the 1987 Medicare Cost Report and AHA Annual Survey. The regression analyses performed indicate that the determinants of the percent of charges for charity care, bad debt, and total uncompensated care differ and suggest that bad debt should be isolated from charity care when estimating a hospital's level of effort in providing care to indigent patients.     

Small hospitals and their insertion in Brazil's National Health System (SUS)

This paper analyses small hospitals (less than fifty beds) in Brazil, in terms of their geographical distribution, legal status, types of wards and units, structures and service production. Under a directive published in April 2004, the Ministry of Health contracts and encourages these hospitals to adapt their profiles to the new roles assigned to them in the health system; consequently, data from December 2005 is compared to data from April 2004. Results: Small hospitals represent 62% of Brazil's hospital network, with 18% of current beds. Located mainly in upstate municipalities with less than 300,000 inhabitants, they offer limited complexity and technological density, with a low occupancy rate (32.8%). There are no changes in their production profiles between 2004 and 2006, due to the brief period since the implementation of Brazil's small hospitals policy in 2004, which has not been supported by the corresponding investment plans and human resources policies. This is a strategic hospital segment for providing all-round care in the Brazil's National Health System, due to its nationwide capillarity, endowed with ample potential for providing primary care while ensuring seamless links with other levels of complexity.     

Capital structure strategy in health care systems

The capital structures (the relative use of debt and equity to support assets) of leading health care systems are viewed as a strategic component of their financial plans. While not-for-profit hospitals as a group have maintained nearly constant levels of debt over the past decade, investor-owned hospitals and a group of leading health care systems have reduced their relative use of debt. Chief financial officers indicated that in addition to reducing debt because of less favorable reimbursement incentives, there was a focus on maintaining high bond ratings. Debt levels have not been reduced as sharply in these health care systems as they have in investor-owned hospitals, in part due to the use of debt to support investments in financial markets. Because these health care systems do not have easy access to equity, high bond ratings and solid investment earnings are central to their capital structure policies of preserving access to debt markets.     

9$ billion wave of redemptions in municipal bond market expected to kick off new year

More than $9 billion of municipal bonds could be redeemed on Jan. 1, which could translate into interest-rate savings for hospitals poised to issue new debt. The huge redemption is the result of the decline in interest rates since the early 1980s, which prompted a rush to issue bonds. Because much of that debt can be redeemed after 10 years, the first wave of redemptions is expected to occur in 1993.     

Hospitals and health systems: the best of times and the worst of times

Hospitals and health systems, whether general acute care hospitals or specialty-driven hospitals, are attempting to prosper in a unique time. This year, hospitals throughout the country will see increased reimbursement for hospital inpatient services, rather than decreased reimbursement. Many hospitals are examining a multitude of options for debt financing and a number of the nation's hospitals are in the process of renovating, expanding, or replacing their current hospitals. Further, more private equity and venture capital funds are pursuing hospital investments than seen in several years. Despite the positive signals stemming from many of the country's hospitals, this remains a time of tremendous uncertainty and risk in the hospital industry. This article discusses five strategic and development issues facing many hospitals and addresses how hospitals can prepare for the future should the current climate, supportive of growth, development, investment, and debt financing, change.     

IRS is making it easier for hospitals to borrow tax-exempt working capital

Updated regulations recently issued by the Internal Revenue Service spell out how hospitals and other not-for-profit borrowers can issue debt to boost their cash flow. While hospitals probably won't be rushing out to borrow money for working capital, the new rules will provide significant help for facilities. They clarify several issues that had confused hospitals in the past and will give them more latitude in the future.     

Assessing the effect of increased managed care on hospitals

This study uses a new relative risk methodology developed by the author to assess and compare certain performance indicators to determine a hospital's relative degree of financial vulnerability, based on its location, to the effects of increased managed care market penetration. The study also compares nine financial measures to determine whether hospital in states with a high degree of managed-care market penetration experience lower levels of profitability, liquidity, debt service, and overall viability than hospitals in low managed care states. A Managed Care Relative Financial Risk Assessment methodology composed of nine measures of hospital financial and utilization performance is used to develop a high managed care state Composite Index and to determine the Relative Financial Risk and the Overall Risk Ratio for hospitals in a particular state. Additionally, financial performance of hospitals in the five highest managed care states is compared to hospitals in the five lowest states. While data from Colorado and Massachusetts indicates that hospital profitability diminishes as the level of managed care market penetration increases, the overall study results indicate that hospitals in high managed care states demonstrate a better cash position and higher profitability than hospitals in low managed care states. Hospitals in high managed care states are, however, more heavily indebted in relation to equity and have a weaker debt service coverage capacity. Moreover, the overall financial health and viability of hospitals in high managed care states is superior to that of hospitals in low managed care states.     

Do competition and managed care improve quality?

In recent years, the US health care industry has experienced a rapid growth of managed care, formation of networks, and an integration of hospitals. This paper provides new insights about the quality consequences of this dynamic in US hospital markets. I empirically investigate the impact of managed care and hospital competition on quality using in-hospital complications as quality measures. I use random and fixed effects, and instrumental variable fixed effect models using hospital panel data from up to 16 states in the 1992-1997 period. The paper has two important findings: First, higher managed care penetration increases the quality, when inappropriate utilization, wound infections and adverse/iatrogenic complications are used as quality indicators. For other complication categories, coefficient estimates are statistically insignificant. These findings do not support the straightforward view that increases in managed care penetration are associated with decreases in quality. Second, both higher hospital market share and market concentration are associated with lower quality of care. Hospital mergers have undesirable quality consequences. Appropriate antitrust policies towards mergers should consider not only price and cost but also quality impacts.     

The association of debt financing with not-for-profit hospitals' provision of uncompensated care

Not-for-profit hospitals undertook unprecedented amounts of debt in the mid to late 1990s. Corporate finance theory and the literature on hospital financing suggest that debt may constrain hospitals' capacity to deliver uncompensated care. Using data from audited financial statements for a sample of hospitals, this article explores whether debt financing is associated with hospitals' provision of uncompensated care, an output central to many hospitals' service missions. Contrary to expectations, our analysis finds that higher debt is associated with higher levels of uncompensated care. However, the results may reflect the unusual economic and stock-market conditions prevailing in the mid 1990s, and they are consistent with the views of hospital financial managers and other practitioners whom we interviewed.     

Management and perception of hospital undernutrition-a positive change among Danish doctors and nurses

BACKGROUND: Undernutrition in hospitals is a common problem associated with increased morbidity and mortality, prolonged convalescence and duration of hospital stay and increased health care costs. During recent years several initiatives have brought hospital undernutrition into focus and guidelines and standards have been published. In 1997, a questionnaire-based survey among Danish hospital doctors and nurses in selected departments concluded that clinical nutrition did not fulfil accepted standards. AIMS: We wished to determine if improvements had occurred in the intervening period. METHOD: Thus, in 2004 a similar questionnaire was sent to 4000 randomly selected Danish hospital doctors and nurses and responses were compared to those from 1997. The questionnaire dealt with attitudes and practice in the areas of nutritional screening, treatment plan, monitoring as well as with knowledge, education, tools and guidelines, organisation and possible barriers to implementation of nutritional screening and therapy. RESULTS: The overall response rate was 38%. We observed a marked improvement especially in screening procedures, calculation of energy intake in at-risk patients and local availability of guidelines. Many departments had appointed staff members with special interest and knowledge in clinical nutrition. CONCLUSION: Although significant positive changes had thus occurred, the main barriers against implementation of good nutrition care continued to be lack of knowledge, interest and responsibility, in combination with difficulties in making a nutrition plan. This will be the focus of future activities.