- Hospitals are seeking increased short-term commercial loans to respond to and prepare for coronavirus costs.
- A major concern is lost revenue from the suspension of elective surgeries.
- Hospitals may qualify for federal loans through legislation advancing in Congress.
Hospitals increasingly are looking for short-term commercial loans and expedited federal loans to fund their costly coronavirus responses.
Hospital are seeking short-term loans to cover the actual and expected costs associated with their coronavirus response, said Eric Jordahl, managing director of the treasury and capital markets practice of Kaufman Hall.
Short-term financing concerns are “absolutely top of mind right now for a lot of organizations,” Jordahl said. “A lot of organizations are trying to figure out how much liquidity they think they should have going into all of this stuff, what are the potential sources and how do they go about getting the desired position into place.”
Philip Kaplan, a managing director for Hammond Hanlon Camp (also known as H2C), said banks can provide short-term loans to hospitals within a few weeks.
“Most banks we’ve spoken to have said they are very interested in trying to support their clients and are open to providing interim funding for what their needs are,” Kaplan said, referring to loans such as lines of credit.
Additionally, many hospitals have available lines of credit that they secured after the 2008 financial crisis.
“For those that have not done that, they’re going to be looking to do that now,” Kaplan said.
Hospitals’ short-term financing needs are driven not only by anticipated supply, medical equipment and staffing requirements but also by the loss of revenue from the suspension of elective surgeries — sometimes under state orders — to free space for coronavirus cases, Kaplan said.
“And that’s really the most profitable part of a health system’s business,” Kaplan said about elective surgeries.
Hospitals are accumulating liquidity pools in advance of potential financial dislocations related to the coronavirus, including:
- Illnesses among revenue cycle that cause disruptions in collections
- Disruptions in health plan operations that affect timely payments
Federal assistance sought
Hospital advocates have sought access to federal loans from one of the coronavirus legislative packages advancing through Congress.
Legislation introduced March 19 in the Senate provides emergency loans explicitly targeted to several industries. However, hospitals were not named as targeted recipients and are unlikely to qualify for some of the $150 billion included for “other eligible entities,” said Carlos Jackson, vice president of legislative affairs for America’s Essential Hospitals (AEH).
Safety net hospitals, which have an average margin of 1.6%, compared with 7.8% among all hospitals, are bracing for a coronavirus patient surge, Jackson said.
The loans are needed, Jackson said, because previously offered federal grants take much longer to get funds to hospitals.
“Our hospitals want direct and immediate financial relief,” Jackson said.
Similarly, rural hospitals, which have been the most likely to close due to financial distress in recent years, are seeking SBA loans that prioritize small rural healthcare providers and are urging the federal government to waive all interest fees.
Additionally, the National Rural Health Association (NRHA), in a letter to congressional leaders this week, urged that expanded grants be made available to rural providers through the Department of Agriculture’s Community Facilities Direct Loan & Grant Program and said restrictions and requirements for those grants should be eased. The NRHA also sought increased funding for the Rural Hospital Technical Assistance Program that was developed following the 2018 Farm Bill.
Useful steps for hospitals to take
In addition to pursuing traditional sources of short-term financing, like through banks, Jordahl said more hospitals may look at alternatives to raise revenue, such as leasing.
“Think expansively about potential ways of either increasing your liquidity pool or protecting the liquidity that you are generating out of your own operations,” Jordahl said.
Additionally, in response to financial pressures from the coronavirus, hospitals should tighten coordination between operations and staff who oversee debt, cash and invested asset management.
“Sometimes, treasury runs in a little more isolated world, but it is really important right now to have those two things connected,” Jordahl said.