Greetings from Las Vegas, where it seems not only that everyone in the healthcare finance universe is here, but darn near everyone in the universe period. I see more Japanese, English, Russians and others of a foreign persuasion than Americans, almost. Blame it on the cheap dollar. Seeing this sea of humanity gets me thinking about how, as one presenter said today in a presentation about the credit crisis that won’t go away, “everything has something to do with everything.”
Let me explain. Healthcare organizations, collectively, have lots of problems these days, but problems with their borrowing are not of their own doing. These organizations, mainly nonprofit health systems and hospitals, are suffering under problematic long-term financing in part because of a credit crisis caused by the easy money policy of the early part of this decade. That river of easy money fed a flood of cheap mortgages, where it seemed anyone who could put a red ‘X’ on a signature line of a mortgage application was able to get mortgages up to 120% of loan to value—if they wanted them—and many did. Further, financial institutions sliced up these mortgages into collateralized debt obligations, that hid the true value—or lack of value—of the mortgages that stood behind them.
When everyone woke up to the fact that many of these mortgages wouldn’t be paid back, the underlying financial instruments—CDOs—lost value precipitously, starting a vicious cycle of declining home values which further eroded the value of many CDOs, which in turn, couldn’t be sold because no one could estimate their true value anymore. That caused a seize-up in the financial markets that while contained, still isn’t over. Where it stops nobody seems to know. Even healthcare organizations, traditionally some of the most creditworthy institutions, were hurt by this cycle of decline. It showed up in March when many so-called auction rate securities couldn’t find buyers, which means an auction isn’t going to work. Hospitals, in many cases were stuck with debt that--because of covenants in the securities contracts covering auction failures—pushed interest rates in some cases up to 17% or so. Yikes.
And it’s not over yet. In fact, one of the presenters today acknowledged that despite turning in his slides less than four weeks ago, the ratings on bond insurers in the slide had slid even further, making the slide woefully inaccurate.
To try to get the markets working again, the Federal Reserve cut interest rates by more than three percent this spring, killing the value of the dollar as it measures up against other world currencies.
Perhaps that’s why I’m hearing so many foreign accents around here. Our goods are cheap, and so is travel. Flash back to Vegas and the casinos, where at least someone is making money off of all this. Table limits are as high as I’ve ever seen them.
But despite all this economic doom and gloom, there’s good attendance at HFMA this year, and conventioneers this morning were treated to a presentation by Steve Case, the America Online founder and current head of Revolution. One of Case’s companies is Revolution Health, as I’m sure you’ve heard. Case spent his time telling the audience that, essentially, 2008 might be remembered as the ‘Year of the Consumer’ in healthcare. I’ll buy that for reasons I’ll get into in tomorrow’s blog, but for now, I’m going to take some of my pesos—ummm, I mean, dollars—and hit the casino.