Q: What are some common loans hospitals have been seeking in the current market?
Anthony Mai: Many hospitals are seeing Medicare payments and payments from private insurers not keeping up with hospital expenses. Also, they are seeing lower patient volumes, and increases in charity care which have affected their revenue and cash on hand. As a result, many are holding off on big capital purchases.
We are seeing a bigger trend in hospitals looking to refinance their real estate holdings. Others are looking for tax-exempt financing which is difficult since banks assets have reduced thus reducing dominicus capacity.
Q: What have been some of the challenges for hospitals looking for financing and loans in the current market?
AM: As the economy went into a downturn, many national players left [the healthcare loan market], and, as a result, only regional and local banks were left to provide financing for healthcare providers.
Some of these smaller banks don’t have the capacity to lend to hospitals based on their size. However, unlike surgery centers, hospitals are in a good position because most banks can get comfortable with a hospital’s balance sheet and income statement. If the hospital is a not-for-profit entity, there is a good chance that they have some state support
Q: What are some loan opportunities that currently exist for hospitals?
AM: The stimulus plan (the American Recovery and Reinvestment Act) increased the threshold to qualify for bank-qualified, tax-exempt financing. This means that the limit to qualify has increased from $10 million to 30 million. This expires in 2011. Many hospitals are currently not taking advantage of this program, which surprises me. I suspect that most hospitals will apply for these loans in the last six months of 2010.
Q: Do you think access to capital will be easier moving forward or is the economy still unstable?
AM: I believe that the credit crisis has bottomed out; however, I don’t think banks will be returning to past ways. This can be bad for hospitals unless they are existing clients [as banks will be less willing to lend money to non-customers.]
I do think traditional lending to hospitals will continue in the future, leading to more access to loans. Hospitals will provide banks with a balance sheet, and banks will look at it and judge whether or not they are willing to lend money to the hospital.
Q: What advice do you have for hospitals that are looking for loans in the current market?
AM: Many banks are dealing with financial issues from the real estate market and may be in the business [of healthcare] where profitable. Hospitals should ask, “What’s your experience in the healthcare market?” If they do not have a focus or if they don’t know, move on.
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