Chicago (BUSINESS WIRE) - August 8, 2005 – Balancing community needs and business growth are top challenges for many not-for-profit hospitals and health systems today. According to a new report, the quality of a hospital’s capital structure can cost or save an organization millions of dollars, a crucial factor for many hospitals struggling to survive in an era of slim operating margins. The need to wisely manage capital structures is driving many hospitals and health systems to better balance their missions with their margins.
The report, Financing the Future II, was developed by the Healthcare Financial Management Association (HFMA) in partnership with two healthcare industry leaders, GE Commercial Finance Healthcare Financial Services and Kaufman, Hall & Associates, Inc. The second report in the series, Strategies for Effective Capital Structure Management, outlines eight strategies that healthcare organizations can use to increase their access to capital and gain a strategic financial competitive advantage.
For more than four in ten (41%) hospitals, capital spending still lags behind depreciation, according to data from the first Financing the Future I series. “During this difficult financial environment, healthcare organizations cannot afford to neglect any aspect of the capital management cycle, particularly in which capital structure assumes a major role,” said Richard Clarke, president and CEO of HFMA. “The eight strategies outlined in this report will help organizations establish a sound financial approach.”
These strategies are:
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Organizing for effective capital structure management
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Determining the appropriate level of debt capacity
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Determining the optimal mix of debt-to-equity financing and traditional to non-traditional financing
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Selecting and achieving the “right” relationship between fixed-rate and variable-rate debt
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Diversifying variable-rate debt and avoiding exposure to any one form of risk
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Using “swaps” and other derivatives to manage the cost of capital and the capital structure
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Pursuing a level debt structure with the longest possible final maturity
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Monitoring and continuously adjusting the debt portfolio
Some “best-in-class” examples of how not-for-profit healthcare organizations have embraced these corporate finance principles include:
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Ascension Health, the largest not-for-profit healthcare system in the US, assigns and centralizes its capital structure management through its treasury function so that decision making and implementation are coordinated.
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Catholic Health East, a multi-institutional Catholic health system comprised of over 100 healthcare facilities, recently completed a thorough review of its capital formation and debt structure to help increase cash flow and future debt capacity.
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Swedish Covenant Hospital, an independent, non-profit hospital in Chicago, evaluates its mix of fixed-rate and variable-rate debts weekly with its investment banker to positively impact its credit ratio.
“Capital structure is not something you can create and then become passive about,” said Anthony Speranzo, senior vice president and CFO of Ascension, the nation’s largest not-for-profit healthcare system headquartered in St. Louis.
“Healthcare faces a dilemma. The industry expects hospitals to operate as a charity, while Wall Street expects them to deliver profitable growth,” said Jeffrey A. Malehorn, president and CEO of GE Commercial Finance Healthcare Financial Services. “To effectively serve their communities and fulfill their missions, hospitals must fully embrace the best financial practices knowing the change may be difficult.”
“Proper and strategic management of capital structure can be a competitive advantage for hospitals,” said Kenneth Kaufman, managing partner, Kaufman Hall. “It is vital to helping hospitals and health systems access the capital necessary to fund growth and enhance financial performance.”
About Financing the Future II
Led by HFMA in partnership with GE Commercial Finance Healthcare Financial Services – with research conducted by HFMA and PricewaterhouseCooper, the second Financing the Future series seeks to help healthcare organizations of all sizes improve their financial performance.
Financing the Future II includes six reports published over 18 months, for healthcare financial leaders, their staffs and healthcare executive board members. Each report illustrates how actual hospitals and health systems have applied corporate finance principles to achieve successful financial performance and capital access. The first report published in May 2005 covered key principles of better practice financial management, and this second report focuses on one of those principles – the “right” capital structure. Future reports will address: strategic financial planning, as well as capital planning and allocation (Report 3); joint ventures with physicians and other partners (Report 4); strategies for financially struggling hospitals (Report 5); and the outlook for capital access (Report 6).
The next report in the series will be issued in November 2005.
For More Information
To order this report, or previous reports, contact HFMA at (800) 252-4362, and select option 2, or visit www.financingthefuture.org.
Press inquiries should be directed to:
HFMA
Bridget Vrba
312.596.3479
bridget_vrba@chi.bm.com
GE Commercial Finance Healthcare Financial Services
Deia Campanelli
312.441.6169
deia.campanelli@ge.com
Kaufman, Hall & Associates, Inc.
Kenneth Kaufman
847-441-8780
KKaufman@kaufmanhall.com
About HFMA
HFMA is the nation's premier membership organization for more than 32,000 healthcare financial management professionals employed by hospitals, integrated delivery systems, managed care organizations, ambulatory and long-term care facilities, physician practices, accounting and consulting firms, and insurance companies. Members' positions include chief executive officer, chief financial officer, controller, patient accounts manager, accountant, and consultant. HFMA offers educational and professional development opportunities, information on key issues, technical data and networking opportunities, with the ultimate goal being to create a more supportive environment in which members do their business. For more information, visit the Association’s Web site at www.hfma.org.
About GE Commercial Finance Healthcare Financial Services
GE Commercial Finance Healthcare Financial Services is a provider of capital, financial solutions, and related services for the global healthcare market. With over $13 billion of capital committed to the healthcare industry, Healthcare Financial Services offers a full range of capabilities from equipment financing and real estate financing to working capital lending, vendor programs, and practice acquisition financing. With its knowledge of all aspects of health care from hospitals and long-term care facilities to physicians’ practices and life sciences, Healthcare Financial Services works with customers to create tailored financial solutions that help them improve their productivity and profitability. For more information, visit www.GEHealthcareFinance.com.
About Kaufman, Hall & Associates, Inc.
Founded in 1985, Kaufman, Hall & Associates, Inc. is counted among the country's most respected independent financial and capital consultants, working with healthcare organizations of all types and sizes. Kaufman Hall provides financial advisory services to debt transactions; prepares and implements integrated strategic, financial and capital plans; designs comprehensive capital allocation processes; and assists in the evaluation, structuring and negotiation of merger, acquisition and divestiture transactions. In addition, Kaufman Hall developed and markets the ENUFF Advisor® Suite of financial management software products. Kaufman Hall serves its clients from offices in Chicago, Los Angeles, San Francisco, Boston and Atlanta. For more information, visit www.kaufmanhall.com.
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