Fed in­ter­est rate hike could spur more healthcare bor­row­ing

Modern Healthcare - - THE WEEK AHEAD - — Beth Kutscher

A Fed­eral Re­serve in­ter­est rate hike could come as soon as the group meets Sept. 16-17, but the move isn’t likely to de­ter healthcare bor­row­ing. In fact, it may even en­cour­age providers to ac­cel­er­ate spend­ing plans.

Not-for-profit healthcare or­ga­ni­za­tions have re­turned to the bond mar­ket to fund new projects and re­fi­nance older debt af­ter a sig­nif­i­cant pull­back in 2014.

In the first six months of the year, healthcare bond is­suances to­taled $18.9 bil­lion, a 76% in­crease over the pri­o­ryear pe­riod’s $10.8 bil­lion, a Thom­son Reuters anal­y­sis found.

Of that amount, $12.6 bil­lion came from hos­pi­tals—a 215% jump over last year’s $4 bil­lion, ac­cord­ing to data from ad­vi­sory firm HFA Part­ners.

In the cur­rent low in­ter­est-rate en­vi­ron­ment, even a 1% or 2% in­crease would prob­a­bly have min­i­mal im­pact, said Pierre Bo­gacz, man­ag­ing di­rec­tor at HFA.

“There’s still a lot of cush­ion,” he said.

Bo­gacz says, if any­thing, healthcare bor­row­ers might move up cap­i­tal spend­ing plans to get ahead of po­ten­tial rate in­creases.

Any ini­tial rate uptick is likely to be small—a quar­ter of a per­cent­age point— for short-term rates. But it would grad­u­ally in­crease to 2.75% by late 2017.

Hos­pi­tals may feel the sting in their in­vest­ment port­fo­lios. Many health sys­tems have changed their as­set al­lo­ca­tion to in­vest more in bonds rather than volatile stocks. But as in­ter­est rates rise, bond prices fall, which could fur­ther hurt in­vest­ment re­turns, Bo­gacz said.

Fed­eral Re­serve chair Janet Yellen

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