Waller Lansden Dortch & Davis, LLP (Waller Lansden), home to one of the United States' largest and most comprehensive healthcare law practices, conducted a survey of hospitals entitled "Hospital Investments in Competitiveness: Financing Options." Waller Lansden published the survey in the December issue of HealthLeaders. According to Reggie Hill, the head of Waller Lansden's health care industry practice:
Waller Lansden sponsored the survey to provide useful information to the healthcare industry, and in particular hospitals and financing sources, concerning the financing plans of hospitals. All hospitals are under pressure to maintain and upgrade their facilities and technology in order to attract physicians and patients and to provide quality care and must have access to capital to finance their needs in this regard.
The survey had an 11 percent response rate from almost 4,100 surveys sent out and, therefore, only a 5 percent statistical margin of error.
The major findings of the survey were:
- Even before the current credit crunch, hospitals avoided advanced financing vehicles, preferring to utilize traditional methods of financing, such as tax-exempt bond financing, philanthropy, current reserves and traditional bank loans.
- 74 percent of responding hospitals expected to renovate one or more facilities in the next two years, while approximately 50 percent plan to expand their current facilities, convert to offer new services or develop a satellite campus or clinic.
- 77 percent plan to acquire or upgrade new equipment having a value in excess of $500,000 over the next two years; 65 percent are planning major investments in information systems; 60 percent plan significant investments to expand or improve services and 39 percent plan to add new services.
- Although rural hospitals were slightly more likely than urban and suburban hospitals to be planning to replace facilities, they generally were less likely to be planning significant capital investments.
- Hospitals in the Northwest were most likely to use current reserves to fund capital investments and the most likely to be considering the replacement of facilities.
In sum, most of the hospitals responding to Waller Lansden's are planning significant upgrades and improvements to facilities, equipment or technology, but plan on using traditional sources of funding to do so. In that regard, Brian Browder, a partner at Waller Lansden specializing in health care acquisitions, says of the study:
The survey is intriguing for what it shows about hospitals relying almost exclusively on historical financing vehicles. It will be interesting to see in the current credit crunch, including the auction rate securities slippage, how this conservatism will play out in the financial health of hospitals over the next few years.
Mr. Browder's comments are particularly interesting in light of the conclusion of Alvarez & Marsal in its recent study, "Hospital Insolvency: The Looming Crisis," which is also featured in this newsletter, that hospital boards and management must abandon the "band-aid" approach to problem-solving and adopt more aggressive approaches. The current financial crunch may compel hospitals to "think outside of the box" when it comes to determining how to finance their planned upgrades and improvements.
A full copy of the survey, can be found at Waller Lansden's Web site, www.wallerlaw.com.
Many thanks to the Committee's ListServe Moderator, Bobby Guy, a partner at Waller Lansden, for making the survey available to the committee newsletter.