Hospitals face growing struggle to access capital

Healthcare Financial Management, Dec, 2003

Facing rising demand, aging facilities, and other drivers of capital spending, many hospitals may not have access to the capital they need to renovate and expand their facilities for the future, according to a new report from HFMA in partnership with GE Healthcare Financial Services.

According to the report, which is based on research by HFMA and PricewaterhouseCoopers, the percentage of hospitals classified as having broad access to capital declined from 42 percent to 36 percent between 2001 and 2002. However, the percentage of limited-capital-access hospitals rose even more sharply, nearly doubling from 11 percent to 19 percent, indicating a widening gap between the two groups of hospitals. Factors such as bed size, ownership, teaching status, and geography are some of the key differentiators for hospitals in strong or weak financial health.

The report shows that a number of U.S. states are home to a high percentage of limited-capital-access hospitals. Ironically, the states with a high concentration of limited-capital-access hospitals are also those that depend on health care as an industry to support the state economy, such as New York, Hawaii, and the District of Columbia. This situation suggests that slowing growth of the healthcare industry may significantly affect the local economics.

HFMA President and CE0 Richard L. Clarke, FHFMA, said, "These research findings demonstrate that a combination of inadequate payments and rising costs make it difficult for hospitals to display the kind of balance sheets traditionally associated with easy capital access. Given the intense need for capital to support increasing demand and new technology, these findings point to real challenges ahead for healthcare providers."

Operational characteristics also vary between financially strong and weak hospitals, with utilization playing a key role in determining an institution's financial success. Between 1997 and 2001 broad-capital-access hospitals reported a 23 percent higher average daily census (ADC) than limited capital-access hospitals, which suffered a 12 percent decline. Operating margins for both hospital groups also declined, but by a much more significant amount in the limited-capital-access sector.

The report, How Are Hospitals Financing the Future? Access to Capital in Health Care Today, is the first in a six-part series titled Financing the Future. HFMA members received a summary of the report with their November issue of hfm and can also download a free copy of the full report from the Financing the Future web site.

To visit the Financing the Future web site. go to www.financingthefuture.org.

To browse all of HFMA's capital-related products and services, go to www.hfma.org/resource/capital.htm.>

COPYRIGHT 2003 Healthcare Financial Management Association

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