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Friday, June 15, 2012

10 Hospital Capital Financing Strategies for Turbulent Times


The capital financing environment for hospitals has become quite volatile and unpredictable. Hospitals and health systems have had to contend with limited capital access, fewer options, higher costs, more restrictive terms and less flexibility than in previous years. As the volatility and unexpected events are likely to continue for the foreseeable future, here are 10 strategies that can help keep your hospital afloat:

  1. Encourage your corporate boards and executive teams to do everything possible to maintain as strong a credit rating as possible.
  2. Practice enterprise risk management across your organization. Doing so entails an integrated strategic assessment of organizational risks measured from a financial perspective — including strategic, operational and capital structure.
  3. Develop an inclusive capital strategy that encompasses assets, liabilities and their relationships with each other. Clearly decide on the organization’s preference for or aversion to risk, and pinpoint metrics that accurately track assumed risks.
  4. Choose a diverse mix of debt instruments to minimize risk and volatility. Don’t rule out informed use of derivatives or swaps. Diversification can extend to banks, loan repayment terms and cash/reserve fund balances.
  5. Examine existing banking relationships in anticipation of the near-term need to renew existing lines of credit or seek new capital loans. It’s never too early to begin the renewal or application process.
  6. Incorporate leasing options into the hospital’s capital financing strategy. Evaluate current leases and consider leasing for appropriate future projects, balancing them against other funding alternatives.
  7. Purge nonproducing, noncore assets from the hospital’s existing portfolio of businesses.
  8. Pursue partnership options with other hospitals and health care players. Early movers in consolidating markets will have a competitive advantage.
  9. Consider a capital injection or a full acquisition by a private equity firm if your situation looks truly dire.
  10. Project how the evolving national health care reform plan may affect your hospital’s financial operations and strategic initiatives.

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