Browse by Topic
More than 40,000 members value HFMA's thought leadership and practical strategies. HFMA is where you need to be.
Get acquainted with the
healthcare finance industry's leading professional association. Find out why our
members rely on HFMA as their go-to source for insight and
Members have many
options for helping them advance their careers. Conferences, seminars,
eLearning, certification, and more -- our education and events will keep you
Connect the dots on today's big issues, explore collaborations, get career-boosting tips, and network with colleagues nationwide at the leading finance conference. Save $100 off the full conference rate when you register by May 8.
Real-time presentations with nationally recognized experts, networking opportunities, and industry solutions—no travel required!
Get the latest, practical education in key areas of healthcare finance over 1, 2, or 3 days. Choose Essentials Programs or Master Sessions in DC or Seattle. Register early and save $100.
If you're a subscriber to any of our three newsletters, you have access to online education. Learn more or subscribe.
Get the perspectives of leading healthcare finance professionals on today's hottest issues.
Information about leading vendors helps your buying decisions.
Forum members can network during live webinars or access a library of past webinars on topics such as bundled payment, charity care, and ICD-10.
An ever-expanding collection of spreadsheets, policies, job
descriptions, checklists, and more that you can adopt and adapt.
Forum members can submit vexing questions to a panel of experts
using our Ask the Expert service.
Your source for employment solutions.
Find new employment opportunities or
reach out to qualified candidates.
Distinguish yourself as a
leader among your peers and advance your career by earning certification in our
healthcare finance programs.
Get an objective third-party evaluation of products and services used in the healthcare finance workplace.
MAP App is a web-based application that helps organizations improve revenue cycle performance based on industry-standard metrics called MAP Keys.
Find suppliers and products in this comprehensive vendor directory for healthcare finance professionals.
Guidance for understanding and communicating about the price of health care.
Guidelines on how to make it easier for consumers to get information about healthcare prices.
Improve your revenue cycle performance through standard metrics, peer comparison, and successful practices.
By Tanya K. Hahn
The end of 2010 saw the expiration of a number of options for hospitals seeking financing for capital projects. These temporary measures stemmed from the American Recovery and Reinvestment Act (ARRA) and other Congressional action, and they leave hospitals with yet another shift in the financing landscape that requires re-examination of available avenues.
Build America Bonds no longer exist (though legislation has been proposed to extend them), the higher bank-qualified bond limits authorized by ARRA have reverted to lower levels, and the Federal Home Loan Bank can no longer support tax-exempt hospital financing.
Yet the changes to these options have not left holes behind: rather, they leave a different set of financing options to consider in 2011.
This is a sample article from HFMA's subscription newsletter, Strategic Financial Planning, which helps senior financial leaders respond to reform and federal/state budget cuts, improve strategic planning, access and allocate capital, identify and respond to risk, and take advantage of growth opportunities.Learn more and subscribe to Strategic Financial Planning.
In 2009 and 2010, Build America Bonds (BABs) provided governmental hospitals with a 35 percent subsidy on their interest cost. The program was designed to provide an alternative to tax-exempt bonds, which were not-and still are not-providing the interest rate advantage they traditionally have.
In 2011, municipal hospitals in strong communities can try to leverage taxing authority and government relationships to reduce interest rates. They can consider issuing rated or unrated bonds, or pursuing enhancement to improve a credit rating. Some communities may have unfunded general obligation monies that could be applied to a hospital project without a new taxpayer vote. Hospitals seeking new general obligations must be mindful of the time necessary to bring a vote to the ballot; this is generally not an option for projects with a rapidly-approaching start date.
Bond insurance is still available to government hospitals that can back the insurance with a general obligation pledge, though generally the bond insurer will limit the enhancement to hospitals with revenues of over $50 million.
It is critical for hospitals relying on their tax bases to "stress test" their debt capacities prior to issuing bonds or seeking credit enhancement. Evaluate the impact of a material drop in the tax base on the current operations cushion and on the ability to repay the planned debt. In addition, the amount of debt per capita will be a major issue for investors and rating agencies if the project is located in an area where employment opportunities are concentrated among a small number of employers.
The Federal Home Loan Bank (FHLB) consists of 12 independent entities that lend to local community banks. Most are rated AAA. For the past couple of years, the FHLBs have been permitted to credit-enhance a hospital's tax-exempt debt when an unrated or low-rated bank provided a letter of credit. This meant local banks could provide hospitals investment-grade credit enhancement usually available only from larger banks. A local bank's familiarity with a hospital's community impact may make it more willing than a large bank to participate in a project.
In 2011, the FHLB can still enhance hospitals' taxable debt issuances, but not tax-exempt debt. Since fixed-rate tax-exempt debt is not providing the cost break it usually does, the taxable FHLB option is still a good one. Further, taxable bonds require fewer upfront closing costs, and there are fewer restrictions on the use of bond proceeds. This is a lesser-known option that may require investigation and research on the part of the borrower and the local bank, which will have to consider the implications of posting collateral for the letter of credit.
When tax-exempt bonds are designated bank-qualified, banks can deduct 80 percent of their cost of buying and carrying them. Banks pass along the savings to borrowers by way of a reduced interest rate. Normally, only $10 million can be designated bank-qualified by any bond issuer in one year, meaning if a municipality had commitments for the full amount of this limit, the hospital would be shut out of funding from that source that year. While ARRA increased this limit to $30 million and applied the limit to the borrower, the limits reverted to normal levels after December 31.
Borrowers can get creative, though, by looking for bond issuers other than the hospital's traditional municipal source. If hospitals can find more than one issuer with bank-qualified capacity, they may be able to combine those sources to overcome the $10 million limit. Hospitals should keep in mind that the more funding sources involved, the more legwork and project management required.
Alternatively, hospitals can consider phasing their projects over multiple calendar years to stay within the $10 million limit. The risk in this scenario is, as always, market movement and changes in interest rates.
Numerous other options are still available in 2011for both municipal and nonprofit hospitals, and they can be used on their own or combined to create an affordable, tailored debt structure.
Federal financing remains a viable option through both the Federal Housing Administration (FHA) and the U.S. Department of Agriculture. The FHA's mortgage insurance program is available for both new construction and, as of 2010, for simple refinances. And in 2011, the USDA offers both its Business and Industry Program and its Community Facilities Program for hospitals in communities of less than 50,000 people for the former and 20,000 people for the latter. These structures provide credit-enhanced debt with amortizations of up to 25 years for FHA and 40 years for USDA. Underwriting standards for these programs necessitate the utilization of a lender familiar with the programs' requirements and limitations who can compile a credit package that accurately describes the hospital's strengths and goals.
Private placement of bonds has been a successful structure for several hospitals despite the markets. This path requires a lender with a firm grasp on local, regional, national and international banks' appetite for purchasing certain types of debt. Lastly, off-balance sheet financing and Real Estate Investment Trusts are also potential 2011 financing alternatives.
The coming year brings numerous challenges. Access to capital will be competitive, particularly given the unusually high number of letters of credit expiring in 2011 and 2012, bringing borrowers to market to seek either extensions or revised debt structures.
Some borrowers are in the position of needing to finance in 2011, but they may not be able to access the ideal debt structure at an affordable cost of capital. For these borrowers who must proceed with financing at less-than optimal terms, special consideration should be paid to incorporating flexibility into debt covenants, prepayment penalties and other terms. The borrower may find that paying a higher interest rate is worth the benefit of future flexibility to refinance early. Borrowers may also be able to negotiate smaller periodic enhancement fees, rather than annual fees, to smooth cash flows.
While the loss of the ARRA provisions narrows the financial options available to hospitals seeking funding for capital projects in 2011, there are still ways to get projects done. A good knowledge of all other possibilities will be critical in obtaining required financing at reasonable terms.
Tanya K. Hahn is a senior vice president, Lancaster Pollard (firstname.lastname@example.org).
This article is reprinted with permission from The Capital Issue at www.lancasterpollard.com.
Publication Date: Monday, April 11, 2011
Russ Graney, founder and CEO for Aidin, and John Laursen, head of business development for Aidin, share insights on how to improve care transitions between acute and post-acute care settings and incentivize high-quality patient outcomes.
Scott Elston, strategic accounts manager, GE Healthcare Services, describes how substantial cost reduction in health care requires rethinking business strategy and asset use.
Robert Williams, MD, director, Deloitte Consulting LLP, and Arielle Freiberger, product strategist, ConvergeHEALTH by Deloitte, explain how sophisticated retrospective, real-time, and predictive data analytics can inform decision making to reduce costs and improve care.
Stuart Hanson, director of business development (healthcare solutions) at Citi Retail Services, discusses how improving the payment experience can benefit consumers and healthcare providers.
Scott Schmidt, vice president, Cerner RevWorks, LLC, shares insights on best practices for maximizing a revenue cycle management partnership.
HFMA's print, email, online, and mobile opportunities provide you maximum reach and impact. We will work with you to build a plan that meets your needs. Contact a sales rep.
HFMA offers online, email, and print opportunities to help you recruit the most talented healthcare finance professionals. Place your classified ads today.
Drive down costs while improving quality in a reform environment.
Stay informed about new directions in healthcare finance. Share tools and strategies for improving performance. Be an active participant in your profession. Together, we’ll reshape the business and practice of healthcare. Join us.
©2015 Copyright Healthcare Financial Management Association
HFMA.org is best viewed using IE9 or the latest versions of Chrome, Firefox, and Safari.
Join HFMA today and enjoy: