Hedging their bets. Strong market performance is delivering pleasantly surprising results for investments made by not-for-profits

CFOs aren't partying like it's the 1990s, but healthcare portfolios did deliver double-digit increases in 2003, a Commonfund Institute survey said. Executives, seeking to avoid losses, have invested in controversial hedge funds, which have become a little too popular, says the institute's executive director, John Griswold, left.

Critical access hospitals

A variety of factors are coming together that will ignite an explosion of conversions to critical access hospital status. What hospitals are eligible to become CAHs, what are the benefits to converting and what should hospital leaders consider before taking the plunge?

How are hospitals financing the future? Core competencies in capital planning

Financing the Future is a yearlong project to help hospitals take advantage of growth opportunities. Led by HFMA in partnership with GE Healthcare Financial Services, the project provides information, insights, strategies, and tools designed to help hospitals finance their future. The findings of Financing the Future are based on research conducted by HFMA and PricewaterhouseCoopers. To access the first four Financing the Future reports, visit www.financingthefuture.org.

Capital access

To maintain their viability, hospitals are being compelled to invest in big capital projects such as information technology and renovation and construction. This gatefold examines the trends in credit and capital, and how they affect hospitals' access to money.

The effect of activity-based financing on hospital efficiency: a panel data analysis of DEA efficiency scores 1992-2000

Activity-based financing (ABF) was implemented in the Norwegian hospital sector from 1 July 1997. A fraction of the block grant from the state to the county councils has been replaced by a matching grant depending upon the number and composition of hospital treatments. As a result of the reform, the majority of county councils have introduced activity-based contracts with their hospitals. This paper studies the effect of activity-based funding on hospital efficiency. We predict that hospital efficiency will increase because the benefit from cost-reducing efforts in terms of number of treated patients is increased under ABF as compared with global budgets. The prediction is tested using a panel data set from the period 1992-2000. Efficiency indicators are estimated by means of data envelopment analysis (DEA) with multiple inputs and outputs. Using a variety of econometric methods, we find that the introduction of ABF has improved efficiency when measured as technical efficiency according to DEA analysis. The result is less uniform with respect to the effect on cost-efficiency.

Pensions cut deep. After years of reduced or eliminated pension fund contributions, hospitals are being forced to pay up

When the economy was booming and investment returns were strong, many hospitals benefited from "funding holidays" that let them reduce or eliminate annual pension fund payments. But not-for-profit hospitals' pension funds lost more than 6% last year, and a discount-rate drop boosted funding requirements. It's a "double whammy," according to Kim McCarthy, left, of Trinity Health.

Meet the new WellPoint. Providers wonder how they and their patients will have to change to cope with the biggest managed-care merger to date

Indianapolis-based Anthem, left, agrees to acquire rival Wellpoint Health Networks for $16.4 billion, creating the nation's largest health insurer. On the same day, current industry leader UnitedHealth Group agrees to pay $2.95 billion for Mid Atlantic Medical Services in an attempt to gain market dominance over the Eastern seaboard. What will the creation of these health plan powerhouses mean for providers.

The cost of inefficiency in US hospitals, 1985-1997

We conducted a descriptive analysis of data from the Hospital Cost Report Information System from 1985 through 1997 on nonfederal, short-stay hospitals in the United States with 12-month reporting periods and valid data for the primary outcomes. The main outcome measures were change in number of beds, inpatient days, overhead cost per bed, and overhead cost per inpatient day. Actual outcomes were compared to predicted outcomes from: (1) a scenario holding the ratio of overhead cost per volume constant throughout the study period; and (2) a scenario holding overhead expenditures for 1985 constant as volume changed. The sample contained a mean of 3,605 hospitals per year. Volume declined annually by 2.2 beds (95 percent confidence interval [CI], 2.1 to 2.2; P < .001) and 997 inpatient days (95 percent CI, 992 to 1,003; P < .001). Overhead cost per bed increased by 3,388 dollars annually (95 percent CI, 3,049 to 3,737; P < .001) and overhead cost per inpatient day increased by 40 dollars annually (95 percent CI, 36 to 44; P < .001). In the constant ratio scenario, mean overhead cost per bed increased by 42,523 dollars (32 percent), and mean overhead cost per inpatient day increased by 435 dollars (59 percent). In the constant overhead cost scenario, overhead cost per bed increased 15 percent and overhead cost per inpatient day increased 19 percent. Hospital overhead costs are increasing faster than would be expected if efficiency were the primary goal of hospital management.

Capital allocation. Three cases of financing the future

In hospitals and health systems, numerous worthwhile capital projects are competing for limited capital. Hospitals face demands for technology upgrades, facility renovations, and new services. Some projects cannot be delayed, even though they do not bring a direct financial return. Certain services are not themselves profitable but serve as patient gateways to more profitable services.

The hospital bond market and the AHERF bankruptcy

An analysis of hospital, tax-exempt bonds issued before and after the Allegheny Health, Education, and Research Foundation (AHERF) bankruptcy demonstrated that despite the decline in market rates for tax-exempt securities in the post period, bonds issued by hospitals and systems carried higher coupon rates than they did in the pre period. There was a significant decline in the proportion of hospital/system bonds that were insured from the pre to the post period. Bond insurance firms tightened their credit criteria after the bankruptcy, which may explain, in part, why the proportion of insured bonds declined. We conclude that hospital bonds are now viewed as riskier instruments than they were prior to the AHERF bankruptcy. This is reflected in higher coupon rates for both insured and uninsured bonds and fewer insured bond issues. This decline in hospital creditworthiness comes at a time when many hospitals need to replace aging assets and acquire new technologies in response to increased inpatient utilization.

How have hospital investments navigated troubled waters?

The dismal stock-market returns of the past few years compel hospitals to examine their investment policies. The asset-allocation decisions of hospital CFOs and trustees generally are based on market trends. Some of their key concerns include volatility of investment returns, lack of internal resources for investment support, trustee and committee fiduciary and investment education, and retaining experienced investment advisory services.

Motor city blues

With its safety net hospital in peril, Detroit had a choice: fundamentally reform its public health system or watch it collapse. Cities nationwide face a similar dilemma.

Could your financial health be heading for heart break?

A new type of stent may alter demand and affect the financial performance of cardiovascular programs. Patients electing angioplasty instead of CABG as the preferred initial treatment for coronary stenosis may increase. The need for CABG procedures to correct restenosis following angioplasty may decline.