Many people involved in hospitals wonder how it can be financially prudent for investors to put their money into for-profit ventures that buy non-profit hospitals. (Examples here and here.) After all, the argument goes, the newly privatized entities will have to pay taxes, issue taxable rather than tax-exempt debt, lose the benefit of philanthropy, and otherwise be at a competitive disadvantage compared to their antecedents.
In answer, some might make the case that for-profit firms will run hospitals more efficiently. But this is an unproven and unreliable basis for such transactions. Even if there were some efficiency gains, they would be unlikely to offset the additional costs listed above.
No, the answer lies in the risk-reward expectations of equity investors and of purchasers of high-yield taxable debt.* Those expectations are quite different from purchasers of the municipal or other tax-exempt bonds that support the capital needs of non-profit hospitals. It is the difference between a forward-looking, optimistic view of the world and a backward-looking, cautious view of the world.
Let’s start with the tax-exempt debt market, one characterized by risk-averse investors focused on debt coverage ratios and other protections built into indenture agreements.
The rating agencies who serve these investors look at the past performance of the non-profit hospitals and ask, “What could go wrong in the future that might put debt service at risk?” There is a highly limited pool of people interested in such debt, and when ratings fall to near or below investor grade, the number of investors becomes smaller still.
Contrast this with people willing to risk their money in the for-profit world. They are sold on the potential for financial gain, not on the proposition of protecting principal. Those offering this paper present business plans and pro forma’s based on what might be. Sure, due diligence allows an assessment of the downside, but this pool of investors has hedged their bets by building a diversified portfolio.Continue reading…
Yesterday, ONC held a fine gathering at the Grand Hyatt in Washington DC. There were experts, ONC Tiger team members and cutting edge technology vendors displaying and discussing platforms and software for providing patients the opportunity to define granular consent to the sharing of their electronic medical records down to a data element level.
Somewhere in the midst of watching that fabulous and very complex technology, it occurred to me that I don’t quite understand why we are discussing all these things. Obviously, we all agree that patients have a right to privacy, and as HIPAA outlines, our medical records ought to be protected from wanton disclosure without our permission. However, the showcased products and the ensuing conversations at the Grand Hyatt were on a completely different level of sophistication.
Physicians have been exchanging patient records since medical records were invented. Today, patients are signing the obligatory HIPAA forms giving health care providers permission for these exchanges, and most doctors use fax, phone, courier (usually the patient) and occasionally secure email to exchange medical records. A typical scenario would be a PCP making a referral – a letter summarizing the problem is usually written, some test results could be attached, a big yellow envelope with some film may be handed to the patient to bring to their specialist appointment. Physicians equipped with EHRs are doing pretty much the same, in a more automated fashion. We do not consider this an invasion of privacy.
The Patient Protection and Affordable Care Act creates a continuous set of coverage options for every American with income below 400 percent of the federal poverty level, or about half of the nation’s population. Sounds simple, right? To participating families it needs to be, but it will take a tremendous amount of work and creativity on the part of states and the federal government to achieve this vision.
The Affordable Care Act’s guarantee of coverage is actually a patchwork quilt that includes Medicaid, the Children’s Health Insurance Program, employer-sponsored coverage, and plans purchased with subsidies through the new insurance exchanges. While almost everyone will be eligible for some form of coverage, the source of coverage matters because it determines the benefit package, the cost-sharing provisions (deductibles and co-pays), and how costs are allocated between state and federal governments.