A financial fitness regimen for improved capital access: here are five steps you should take now to improve your hospital's access to capital

Healthcare Financial Management, June, 2005 by Kevin T. Ponton

Many consultants say they have the capacity to perform, say, debt capacity analyses. Many bankers can discuss operations improvement initiatives. However, before signing any of them up, make sure their expertise includes banking experience on the consultant's team and operations experience on the banker's team.

4 Undertake a strategic capital fitness review. If the "what" of the capital finance best practice described earlier is an expanded strategic horizon of capital needs, its "how" is a capital fitness review, which should help both managers and board members answer the following questions:

* What are our credit strengths and weaknesses (this applies to both rated and nonrated facilities)?

* How does our credit strength compare with that of our peers?

* How does our credit strength compare with that of our competitors?

* Which external sources of capital are realistic alternatives for us?

* Which internal sources of capital are realistic alternatives?

* Have we harvested all the low-hanging fruit on the expense side? Recently?

* Have we grown the low-hanging fruit on the revenue side? Recently?

* Low-hanging fruit aside, have we looked at the fruit on the rest of the tree--where we need ladders and other tools?

* How much could we borrow today? In three years? Five?

* Where could we partner with an outsider?

* How much should debt capacity be worth to us: in price and (if applicable) in potential reduction of our existing credit rating?

* What kind of credit enhancement might we qualify for?

* We know what our assets are worth, but what is the financial value of our business lines to us?

5 Keep your board up with its reading. Sure, there's too much information out there for all of us to keep up with. But to encourage the development of an expanded strategic capital horizon, be sure your board has digested at least the following publications:

* Futurescan: Healthcare Trends and Implications 2005-2010, Health Administration Press, 2005

* Financing the Future Report 3: How Are Hospitals Financing the Future? The Future of Capital Spending. HFMA and GE Healthcare Financial Services, 2004 (www.financingthefuture.org)

* Capital Ideas series ("Capital Gap," 2003; "Extending Your Planning Horizon," 2004; "Defining Your Business," 2004), Citigroup and Tiber Group

* The Future of Not-for-Profit Healthcare Capital Financing, HFMA, Healthcare Finance Forum, 2002 (www.hfma.org/resource/businessofhc1.htm)

When's the Payoff?

When can healthcare organizations expect to see the benefit of a financial fitness regimen? Sooner than you might think.

What form can the benefit take? You might be surprised. Just five years ago, the critical access program for rural hospitals was nonexistent. Its potential for cost-based payment was a fantasy. Its ability to open a significant new channel of capital access (through the more user-friendly HUD/FHA-242 mortgage guaranty program) was a joke. But many of those benefits are currently being enjoyed by several hundred rural hospitals, and capital is beginning to flow (see "Critical Access Hospitals Enter a New Era of Capital Finance," hfm, August 2004).