"When we've asked them why is it that you have, for example, less in the way of equities, less in the way of alternatives investment, and so much more in the way of bonds, and fixed income and cash, they say 'it's because the rating agencies who rate the bonds we issue look to our investable assets as a potential repayment pool for the bonds to secure the rating on the bonds. Since we have to keep issuing these bonds to keep refreshing our physical plant we are sort of trapped.'"
Jarvis argues that healthcare organizations are better off with more highly diversified and liquid portfolios to support bond repayment. As organizations move toward implementation of more diversified portfolios, he says, rating agencies will need to be more flexible in their liquidity requirements.
"First thing, it's not completely a result of the Affordable Care Act, but it's certainly given impetuous by that, is the declining reimbursements for services provided, particularly from government but also from private payers going forward. The revenue model is changing so that the undiversified endowment is going to be insufficient to replace the reduced reimbursements," Jarvis explained.
"The second thing is the change that is being forecast in delivery methods. Part of this bond issuance structure is related to the traditional model of the big brick-and-mortal central hospital complex in the middle of the city with a physical plant that has to be refreshed and high technology input."
That traditional physical plant model appears to be changing.
"What I am hearing is that the care delivery for many of these institutions is changing to be much more light on the ground, much more clinic-based, with mobile clinics in shopping areas and in suburbs closer to the patients, even for fairly high impact procedures," Jarvis noted.