Is the financial crisis "taking a toll" on hospitals, as the WSJ Health Blog asserted yesterday, or not? So far, the verdict looks decidedly mixed to me.
On the one hand, the idea that hospitals would be uniquely vulnerable to the recent freeze-up in the credit markets looks like a no-brainer. Hospitals lay out huge sums for new facilities and sophisticated medical equipment, but face unpredictable cash flows thanks to delayed payments from Medicare and health-insurance companies -- not to mention patients who are often unable to pay at all. That makes them heavily reliant on loans for financing their capital expenditures.
Given that, the Health Blog's Jacob Goldstein interviewed two experts who reinforced the notion that hospitals are suffering. Lisa Martin, a senior VP with Moody's, said that "quite a few" hospitals have put off plans to sell bonds over the past few weeks. Similarly, Rich Umbdenstock, CEO of the American Hospital Association, argued that hospitals with variable-rate debt have seen interest-rates shoot up considerably -- as high as 10 percent from just 3-4 percent previously.
Neither expert, however, seems to have put any hard numbers on their assertions, which makes it considerably more difficult to take them seriously. How many hospitals are postponing bond offerings for capital projects? And how much does a hospital really suffer if it has to postpone building a new wing or buying some shiny MRI machines? Seems pretty mild by comparison with what's happening elsewhere in the economy, so by that measure, you could even argue that hospitals are getting off easy.
As for Umbdenstock's point: How many hospitals are really exposed to the interest-rate risk inherent in variable-rate instruments? You'd sort of think anyone financing a multi-year project that could cost tens or hundreds of millions of dollars would have to be an idiot to raise even a fraction of that sum with variable-rate bonds -- at least without hedging them via interest-rate swaps, which would greatly reduce the risk of rising rates. (Although stranger things have certainly happened, given recent experience in the mortgage market.)
Sure, hospitals have a growing bad-debt problem, but that has a lot more to do with the economy and trends such as the rise in high-deductible health-insurance plans than it does the financial crisis. (For instance, I've been meaning to write about the surprising recent finding that insured patients account for roughly two-thirds of bad hospital debt -- far more than the uninsured.) As for trouble in the credit markets -- well, apparently hospitals have been dealing with very similar problems since the collapse of the auction-rate securities market back in February.
Most stronger hospital systems, in fact, seem likely to weather the current crisis quite well, according to two other experts -- a healthcare analyst and a former bond and equity analyst -- recently quoted by Modern Healthcare. (Follow that link and scroll down in the story to find detailed case studies of two such outfits West Virginia United Health System and Interhealth Corp. -- that are managing just fine; free registration may be required.)
None of which is to say that hospitals don't have real financial problems -- many of them do. (More than a few, in fact, are simply giving up the ghost.) But the industry has a distressing tendency to cry wolf any time talk turns to money, and that doesn't do its credibility on the subject a lick of good.
Image via Flickr user Morning Glory, CC 2.0