Common sense needed in healthcare financing

If hospitals are going to borrow money for capital projects or refinance existing debt, they have an obligation to do so wisely, according to a senior healthcare finance executive.

Gerald M. Swiacki, a senior vice president with Lancaster Pollard, a  Columbus, Ohio-based finance advisory firm, discussed the options hospitals and other healthcare enterprises have at the Healthcare Financial Management Association's annual national institute in Orlando, Fla. on Tuesday.

Swiacki noted that although differing forecasts about how the healthcare sector will fare financially in the years after the Affordable Care Act is implemented next year have brought "tremendous uncertainty," capital remains accessible. He noted that public debt offerings in healthcare rose to $32.9 billion last year, up from $26.7 billion in 2011. However, he observed that much of that debt has been associated with refinancing rather than existing borrowing.

For those healthcare entities borrowing money, they must act reasonably, Swiacki cautioned.

"Folks, there is a prudent amount of money to borrow," he said. For example, a rural hospital looking to rebuild its facility may want to consider the less expensive option of constructing a health clinic instead. Borrowers should strive to create a balance between liquidity, the cost of debt coverage, operating margin and debt to capital.

Swiacki presented several case studies, including a 25-bed critical access hospital that spent $53 million to modernize--as an anchor to a downtown redevelopment plan. Although he suggested that the amount was large for a hospital of that size, it was balanced by its "impressive liquidity" and needed to increase its market share in the region. It eventually issued bond-anticipated notes--a form of short-term financing--for construction, that was eventually refinanced through a USDA Community Facilities loan.

Swiacki also discussed the various financing options, which include tax-exempt bonds, FHA 242 loans, straight bank loans, and even healthcare real estate investment trusts for leasing back owned properties. "Every project has a financing mechanism. It's up to you to do the detective work," on which one is the best fit, he said.

 

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