Capital Spending Strategies in an Economic Recovery

John Commins, for HealthLeaders Media , March 9, 2012

Jim Shannon
Executive Vice President of Development, LHP Hospital Group, Plano, TX

The impact of reform: Two things drive the discussions that I am having around capital. The first is healthcare reform. Hospitals that were fiercely independent for decades are no longer feeling comfortable being independent. Everybody is sensing that scale is going to be necessary to compete successfully going forward.

The impact of markets: The second issue is there has been a lot of deferred capital over the past few years, and it is starting to be unsustainable in some markets. Given the weakness in the tax-exempt bond financing arena, folks are finding it more and more difficult to access reasonably priced capital. So they are looking for alternatives.

The calls I get are generally from hospitals that have some big capital need that they can't meet on their own. I don't think there is any doubt that the sluggish economy has impacted the credit markets, which in turn have impacted the amount of capital that hospitals have available to them to spend.

The widening gap: What you see in the healthcare industry is similar to what you see in the economy as a whole. There are haves and have-nots, and the gap is widening. The volume of tax-exempt financing has picked up pretty substantially over the past year and a half or so. But the systems that are getting those bonds tend to be the top-tier organizations. If you are not one of those top-tier organizations with investment-grade credit ratings, it is really difficult to access tax-exempt financing
right now.

This article appears in the February 2012 issue of HealthLeaders magazine.

John Commins is a senior editor with HealthLeaders Media.

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