For hospitals, something's gotta give

Whoa! I don't know about you folks, but after reading some of this week's hospital finance news, it looks to me like things just can't hold together as they have been for too much longer. And since we don't have an entity like the banking industry's FDIC to step in and guarantee their finances, I predict that we may be on the verge of a wave of closures that hasn't been seen in decades. (Yeah, I know--sorry to be such a bummer.)

Of course, even without the subprime meltdown and subsequent Wall Street flame-out, many hospitals' financial indicators have been heading in the wrong direction. Now, with the economy pushing consumers to postpone even somewhat elective services, and self-pay debt levels rising--just to name a couple of new bogeymen--it's gotten a notch or two worse. And hospitals are taking some pretty risky steps to cope with the situation.

As you'll see elsewhere in today's issue, some hospitals are responding by digging into their investment income more deeply than usual, using it to finance capital projects, or even meet operational needs. Others are issuing bonds with the scary codicil that they'll buy them back if finicky investors want to dump them. 

Both of these situations put a huge squeeze on hospitals' long-term viability. One robs from their long-term assets to solve medium-term problems (like how to buy the IT gadget of the week), while the other puts the hospitals at risk of being bled dry by investors who get spooked. 

Of course, I'm not suggesting that smart investment in capital projects is a foolish use of capital, including investment capital. Hey, it might be a smarter use of your money and have more upside than many of today's Wall Street vehicles. But it is a scary way to go. And as for the bond buy-backs, they're an even bigger risk that exposes the institution to catastrophic problems, or even complete failure.

Honestly, I'm sure there are some good news stories out there on the capital financing front, but they haven't reached my desk. Hey, if you've got some, please write to me and tell me about them. I'd love to be the bearer of good tidings for once! - Anne