Economic Climate Changes Banks' Relationships With Hospitals

Les Masterson, for HealthLeaders Media , January 6, 2010

Moving to new banks comes with positives and negatives. Community and regional banks could provide more face-to-face interaction but smaller credit lines. And each institution has different requirements. So the more banks a hospital deals with, the more reporting and analysis a CFO will need to submit to satisfy each bank's requirements.

"When you start to do things like that and you start answering to three institutions rather than one, that makes a big difference and takes a lot more time," says Boynton.

Rowe thinks the move to diversification will continue even after the capital climate improves. "This is probably a permanent change. You are not going to see hospitals maintaining a one-on-one banking relationship," he says.

Getting creative
Boynton says hospitals are looking at different ways to have access to capital. One idea is rather than having bank letters of credit for self-insured programs, such as workers' compensation or medical malpractice, hospitals are finding insurance bonds that allow them to go through the insurance vehicle, which can be a more favorable option now.

"You have to go out and look at these kinds of alternatives," she says.

With this greater scrutiny has also come greater inquiry.

The reason is twofold: Banks are more interested in how healthcare institutions are dealing with the capital crisis, and they have refocused efforts to review rather than sell.

"They are not selling as many new products, so I think there is more of an opportunity to really look at what they have already sold," says Boynton.

Though many hospital CFOs have gotten more proactive and diversified in dealing with banks, there are still questions as to whether CFOs will continue that approach as the capital climate improves. Boynton wonders if CFOs will go back to simply searching for the lowest rates again once business returns to normal.

"Ultimately, the hospital's job, the CFO's job, is to save money for the institution, and that's when reducing the risk and saving the money is most important," says Boynton.

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Les Masterson is an editor for HealthLeaders Media.

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