Effect of Negative Credit Shocks on Hospital Quality

A STUDY OF the National Bureau of Economic Research

BY HEALTH CAPITAL CONSULTANTS, LLC


A recent study from the National Bureau of Economic Research (NBER) indicates that quality and patient outcomes suffer in hospitals that cannot maintain their relationships with banks and their lines of credit.

The NBER study measured quality and cost data in Medicare-certified hospitals from 2010 to 2016, during which banks were undergoing annual stress tests. Regulatory “stress tests” are annual assessments from the Federal Reserve, put in place after the Great Recession in 2008, to examine a bank’s ability to survive an impending economic crisis. (Read more…) 

ASSESSMENT: Your thoughts are appreciated.

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Hospitals Transferring Patient Medical Debt

To RIP Medical Debt

By Anonymous

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About Tax-Exempt Hospital Debt

Understanding the Capital Formation Process

By Calvin W. Wiese CPA MBA

www.HealthcareFinancials.com

Tax exempt debt has become an important means of external financing for hospitals, primarily because its cost is very attractive. Interest rates on tax-exempt financing are lower than interest rates on financing that is not tax-exempt because the interest income earned by the holders is exempt from federal income tax. In some states, it is also exempt from state income tax and in some cities; it is also exempt from city income tax. Accordingly, the holders of these debt instruments (usually bonds) are willing to accept lower rates of interest.

State and Local Governments Issue Hospital Debt

Hospitals themselves are not capable of issuing tax-exempt debt. Only state and local governments are. A state or local government issues tax-exempt debt for hospitals and then loans the proceeds to hospitals. This is called “conduit” financing: the state or local government acts as a conduit through which hospitals can access tax-exempt debt markets. State and local governments are authorized to loan proceeds of their bond issues to hospitals through state statutes, and each state statute is different. Some states authorize any state or local government to issue bonds to loan to hospitals. Other states restrict such power to special purpose governmental entities only. And some states restrict this power to a single governmental entity that is specially formed for the sole purpose of issuing tax-exempt bonds on behalf of hospitals.

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The IRS and Tax Exempt Financing

The Internal Revenue Service (IRS) regulates the issuance of tax-exempt financing. While the IRS code nominally provides that debt instruments issued by state and local governments are exempt from federal income tax, it imposes special rules on conduit issues. Therefore, tax-exempt issues whose proceeds are loaned to hospitals must comply with special IRS rules. Although very complex, these rules primarily regulate the use of proceeds, restricting the use of tax-exempt proceeds to the acquisition of property, plant components and equipment. Given state statutes, IRS code and applicable security laws (both state and federal), issuing tax-exempt bonds is legally complex. Many lawyers get paid handsome fees every time tax-exempt debt is issued. The quarterback of the legal team is the bond counsel who represents the interests of the bondholders; the bond counsel issues the critical tax opinion that investors rely upon to claim tax-exemption on the interest from these instruments. Everything revolves around getting this opinion. Given its’ critical nature, only highly qualified lawyers are accepted by the market to provide this opinion. Underwriter’s counsel represents the interests of the investment bankers; their primary concern is compliance with security laws. Issuer’s counsel represents the interests of the state or local government, and hospital counsel represents the interests of the hospital; both have relatively minor roles. In the event credit enhancement is involved, credit enhancement counsel represents their interests and has significant influence on the process.

Bond Trustees

Another unique party to most tax-exempt bond issues is the bond trustee. The bond trustee is usually a bank who performs a fiduciary duty on behalf of the bond holders throughout the life of the bonds. The face of the faceless bond holders, they act on their behalf. And they, too, are represented by counsel in the bond issuance process. State or local government typically appoints bond counsel. In many cases, they work with only a single firm. Not unusually, these relationships are quite cozy, and often result in fees being paid that are well in excess of what otherwise would be paid.

The Indenture

An excess of documents is involved in most tax-exempt financings. The heart of the documents is the indenture, which is the agreement between the bond trustee (on behalf of the bond holders) and the state or local government issuer. It contains the promises made to the bond holders, and it describes the work of the bond trustee. The bond trustee will only perform actions on behalf of bond holders that are explicitly set forth in the bond indenture. The bond indenture is the security given to the bond holders, describing all their recourses.

Assessment

The bond indenture is typically supported by the loan agreement between the state or local government that issues the bonds and the hospital to which the proceeds are loaned. Its terms complement the terms of the bond indenture, which together, form the conduit.

Conclusion

And so, your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

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About the Hospital Debt Justice Project

Aggressive Debt Collectors Take to the Web

By Staff Reportersradar2

Thousands of patients face crippling debt to hospitals and healthcare systems across the country; even though they may have qualified for free care.

www.HealthcareFinancials.com

Yale-New Haven Health System

Now, the Yale-New Haven Health System, Yale-New Haven Hospital and Bridgeport Hospitals are pursuing aggressive debt-collection practices—including liens, wage garnishments and foreclosures—even though they have millions of dollars set aside for free care for patients who can’t pay. Others have colossal endowments as well, and often pay their CEOs handsomely.

Assessment

But, according to their website, the Hospital Debt Justice Project is only fighting for fair treatment and accountability from our community hospitals.

Link: http://www.hospitaldebtjustice.org

Industry Indignation Index: 85

Conclusion

Your thoughts and comments on this Medical Executive-Post are appreciated. Isn’t it a charity hospital standard that not-for-profits typically charge the poor and indigent up to four times the UCR of insured patients? Your experiences are welcomed. 

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com  or Bio: www.stpub.com/pubs/authors/MARCINKO.htm

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