Representing HFMA, Michael M. Allen, chief financial officer of Winona Health in Winona, Minn., provided testimony before the Financial Services Committee of the U.S. House of Representatives on the impact of recent municipal bond financing issues on not-for-profit hospitals. Explaining hospitals’ need for inexpensive capital to implement electronic health records, invest in new medical technology, and modernize aging facilities, Allen stressed the importance of being able to access an efficient tax-exempt bond market. He urged the committee not to impair the start of a market recovery. “Liquidity facility solutions that are brought to the market should first and foremost be optional and the preservation of a private market for these facilities should be maintained,” said Allen. Initial pricing “should be set carefully to avoid crowding relatively strong, long term providers of liquidity facilities out of the market.” Allen also suggested that liquidity facility solutions be limited to existing issues to avoid a negative impact on the tax-exempt bond market.
HFMA members, Allen testified, support a federally backed municipal bond reinsurance program. He outlined the necessary criteria for the program: a three- to five-year window to give private bond insurers time to recapitalize; market equivalent rates so hospitals don’t receive an unsustainable artificial subsidy, and for outstanding debt issues only. “Limiting it to existing issues allows hospitals that have experienced a spike in capital costs due to insurer downgrades or expired bank letters of credit ‘breathing room’ to cost effectively adjust their debt structure while the private sector recovers,” said Allen.
The underwriting processes, collateral requirements, covenants and usage constraints of the existing FHA 242 program should be optimized to meet the current needs of the market, said Allen. He also recommended eliminating the requirement that at least 20 percent of debt be dedicated to new construction, and asked that the collateral requirements be amended to allow “credit-worthy” hospitals to access the FHA 242 program despite recent adverse financial results. “Sound underwriting practices should be able to separate a financial event that has been dealt with by a seasoned management team from a long term trend of poor performance,” he said. Allen added that HFMA members do not recommend that financial advisors or rating agencies be subject to additional federal regulation..
“We cannot overstate the impact that the suggested simplifications will have on hospitals, particularly small to mid-sized facilities that are not integrated with a larger health system and therefore have difficulty accessing capital at market-rates,” Allen told the committee.
