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.

Paying the hospital: foreign lessons for the United States

This special report synthesizes the findings of a Health Care Financing Administration grant which allowed the author to analyze hospital finance in six foreign countries and in the United States. The author identified the principal problems facing hospital owners, carriers, and governments in the United States, and he conducted lengthy field work abroad to learn how each country dealt with the same problems. One set of the author's conclusions makes more clear issues that are debated in the United States, such as the meaning of "cost-based reimbursement" and "prospective reimbursement". Some of the author's findings show the difficulty of implementing policies often proposed in the United States, such as incentive reimbursement schemes. Other findings of the author show the conditions necessary for cost containment, such as strong representation of consumers and firm political will by government.

Declining reimbursement will demand innovative delivery methods

In summary, hospitals will have to find innovative ways to secure market share as federal reimbursement continues to decline and the commercial insurance industry rebels against the cost shifting burden that is being placed on it. Hospitals can also expect increasing pressure to control costs if inflation rates continue to moderate but hospital expenses exceed the current inflation rates. All in all, the reimbursement system will undergo severe "belt tightening," which will force hospitals to change their product mix; accept new payment systems, such as capitation; and reduce expenses in order to achieve profitable operating margins.

Strategies for surviving the capital shortage

With traditional sources of capital threatened, hospitals are going to have to turn to new sources of capital and new methods of raising capital if they are to meet their facilities and equipment needs during the 1980s. New capital will come primarily from two sources: net income from new health services and health-related ventures operating in less regulated markets, and equity offerings.

Choosing the financing option that's right for your hospital

THe major debt financing options available to hospitals may be evaluated according to two categories of factors: those involving the financing itself and those involving its subsequent operational impact. Structural considerations include the likely trend in interest rates, the time commitment necessary to complete multiple financings, the institutional operating climate, and the likelihood that a preferable vehicle will be available at a later date.