Capital financing techniques for health care facilities: an historical overview

Realizing that a thorough discussion of capital financing techniques for health care facilities would fill several volumes, this article presents an overview of the techniques currently used in the industry. Included is an outline of the basic features, applications, and costs of the various techniques. Because financing techniques in current use evolved from earlier forms, the chronological format adds a measure of clarity and logic to the development of health care financing. The primary focus will be on private, voluntary hospitals since they comprise the majority of the health care financing volume. A particular technique's applicability to public facilities, nursing homes, retirement centers, for-profit facilities, and freestanding facilities is noted, however, when appropriate.

Unintended consequences of prospective payment: erosion of hospital financial position and cost shifting

The reform of the Medicare hospital reimbursement system proposed by HCFA may create incentives for hospitals to transfer costs to other payers, thus reducing the financial incentives to increase efficiency.

Lower interest rates mean that a refinancing might save a bundle

Two recent developments provide compelling reasons for hospitals to consider refinancing or advance refunding their existing debt: the precipitous fall in interest rates since August 1982 and the outcome of recent litigation that permits hospitals to recoup the issuance costs of refinancing or refunding bonds. These favorable developments, coupled with increasing concern over restrictive covenants, will cause many hospitals to evaluate a refunding sometime this year.

Hospital capital formation in the 1980s: is there a crisis?

Access to capital will be a serious problem for a subset of our nation's hospitals in the 1980s. Without adequate capital to modernize or maintain life-safety codes, certain facilities may have no other choice than to close their doors. The consequences of closure are far-reaching and long-lasting. The hospitals that exit from the market may be forced out as a result of their location or payor mix, and not as a consequence of their inefficiency. Allowing capital formation in the hospital industry to be determined by the market criteria of bottom-line performance may lead to a serious contraction of the field, to increased financial hardships for the hospitals that remain, to reduced service provision, and to plant deterioration.

Capital planning strategies in an era of changing ground rules

Changes in federal reimbursement policies and in the private health insurance system will affect boards' capital planning strategies. Actions recommended here include increased attention to debt service costs, return on investments, new capital sources, the efficient use of existing capital, and the substitution of capital for labor.