Fi­nance: risky busi­ness

Modern Healthcare - - Special Report -

Credit mar­kets eased and in­vest­ment port­fo­lios re­bounded as 2009 pro­gressed, but un­em­ploy­ment grew painfully worse and the weak econ­omy threat­ens to fur­ther strain hospi­tal op­er­a­tions in 2010, say health­care fi­nance chiefs and an­a­lysts.

Mean­while, health­care re­form re­mains un­set­tled as in­dus­try ex­ec­u­tives be­gin the new year.

The hang­over from the credit cri­sis con­tin­ues to plague hos­pi­tals even as the cost of bor­row­ing im­proved, and notably so in the fi­nal months of last year, in­sid­ers say. Health­care bor­row­ers—burned by debt mar­ket volatil­ity in 2008 and con­tin­ued un­cer­tainty in 2009—will look this year for ways to min­i­mize debt risk.

Other sources of risk—health re­form and the econ­omy’s strain on state and fed­eral bud­gets—have prompted health­care bor­row­ers to more closely scru­ti­nize and man­age risks over which ex­ec­u­tives and gov­ern­ing boards have more con­trol, such as debt port­fo­lios, says David Cyganowski, manag­ing di­rec­tor and health­care in­vest­ment bank­ing co-head for Cit­i­group, a ma­jor un­der­writer of tax-ex­empt health­care bonds.

Health­care bor­row­ers af­ter the credit cri­sis are in­creas­ingly as­sess­ing bal­ance sheets’ abil­ity to with­stand se­vere dis­rup­tions that prior to 2008 seemed un­likely, Cyganowski says. For some, that will mean more long-term debt with fixed in­ter­est rates and less vari­able-rate debt, which is sen­si­tive to dis­tress among banks that pro­vide credit and liq­uid­ity guar­an­tees for the bonds, he says.

Caroli­nas Health­Care’s Joseph Piemont, pres­i­dent and chief op­er­at­ing of­fi­cer, says the sys­tem has tested bud­get sce­nar­ios that in­cor­po­rate vary­ing de­grees of cuts to Med­i­caid, the safety net in­surer jointly fi­nanced by state and fed­eral tax dol­lars. Fed­eral aid to buf­fer Med­i­caid from state cuts dur­ing the re­ces­sion ex­pires at the end of 2010. And health re­form pro­pos­als ap­pear likely to al­ter re­im­burse­ment, he says, which could af­fect rev­enue pro­jec­tions drafted to fi­nance ma­jor long-term construction or cap­i­tal projects.

Still, Piemont notes that health­care bor­row­ers face far less mar­ket volatil­ity as they en­ter 2010 than they did as they en­tered 2009. “Vis­i­bil­ity is not greatly im­proved,” Piemont says. “I do think the sense of panic is out of the mar­ket.”

De­mand for elec­tive health­care de­clined and more pa­tients were un­able or un­will­ing to pay health­care bills last year as the econ­omy strug­gled. That trend is ex­pected to con­tinue or worsen, should Congress fail to pro­long aid to help laid-off work­ers ex­tend for­mer em­ploy­ers’ health ben­e­fits, pop­u­larly known as CO­BRA. The down­turn wiped out roughly 4 mil­lion jobs in the first 11 months of 2009 and has erased more than 7 mil­lion jobs since the re­ces­sion be­gan in De­cem­ber 2007.

Katherine Ar­buckle, chief fi­nan­cial of­fi­cer for Bon Se­cours Health Sys­tem, Mar­riottsville, Md., says the 13-hospi­tal sys­tem wrote off 4.5% of its bills as free and dis­counted care in 2009, up from 3.3% the prior year, an in­crease that mir­rored ris­ing un­em­ploy­ment rates.

Bon Se­cours closed its books at the end of Au­gust. Char­ity-care costs have so far slightly ex­ceeded ex­pec­ta­tions this fis­cal year de­spite pro­jec­tions that in­cluded a “mod­est in­crease” for such ex­penses, she says. If that trend holds, Bon Se­cours will be forced to make cuts else­where to off­set the loss, Ar­buckle says.

—Me­lanie Evans

Ar­buckle: Write-offs for care mir­ror the rise in un­em­ploy­ment.

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