6 Alternative Sources of Capital for

Hospitals
Staff - Monday, August 1st, 2011 Print  | Email
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As pressure to reduce healthcare costs grows and deep cuts to Medicare and Medicaid loom, many hospitals and
health systems are turning to alternative means of obtaining capital. For example, hospitals are using real estate
investment trusts, private equity firms, the Federal Housing Administration's Hospital Mortgage Insurance Program
and other alternative sources of funds to finance capital programs. Fred Campobasso, managing director of
consulting firm Navigant, explains six alternatives to traditional capital resources.

1. Real estate investment trusts. REITs have a great deal of available capital that many hospitals have started
tapping into, Mr. Campobasso says. For example, in April, Sabra Health Care REIT purchased the real estate
of Texas Regional Medical Center at Sunnyvale for $62.7 million and plan to lease it to the center and a group of
approximately 75 physicians who practice at the center. In 2010 alone, healthcare REITs made more than $11
billion in acquisitions.

2. Federal Housing Administration funds. Federal government programs, such as the Federal Housing
Administration Section 242 Hospital Mortgage Insurance Program under the Department of Housing and Urban
Development, have also provided hospitals with alternative sources of capital for expansion and development. For
example, the Effingham Hospital in Springfield, Ga., recently received a $30.94 million loan from the FHA for
modernization projects.

A surprising trend, according to Mr. Campobasso, is that in the past 12-24 months even some of the stronger
hospitals were using the FHA program to fund capital projects. "It was unprecedented because in the past, [hospitals]
have looked at the FHA financing program as a last resort," he says. While stronger hospitals are choosing this
option less, he says the FHA program may have gained ground among healthcare organizations because the overall
terms and conditions including cost of capital were competitive to traditional financing as the country transitioned out
of the economic recession. "If you analyze the overall transaction cost of capital compared to traditional tax-exempt
bond terms and requirements, [the FHA] was a very viable alternative because the spread was narrower," Mr.
Campobasso says. In addition, in the past the transaction time for FHA funding was approximately two years, but
recently decreased to 12-14 months, making the option more attractive to healthcare organizations in need of capital.

3. For-profit/Non-profit partnerships. One way non-profit hospitals have been accessing capital is through
partnerships or acquisitions by for-profit hospitals or health systems. For example, for-profit Plano, Texas-based LHP
Hospital Group and non-profit St. Mary's Health System in Waterbury, Conn., are planning a joint venture, which
would convert St. Mary's into a for-profit hospital. Relationships between for-profit and non-profit healthcare
organizations can benefit both groups by providing the non-profit system with needed capital and providing the for-
profit system with added resources.

4. Private equity investment. Private equity firms' investment in healthcare is a new and growing trend that presents
an attractive option to many financially unstable hospitals. "Private equity firms investing in healthcare systems is a
paradigm shift that was not necessarily expected," Mr. Campobasso says. Although unexpected, private equity firms
can benefit through these acquisitions by using their capital to develop hospitals and health systems into profitable
organizations. "The idea is that [the firms] can deploy their equity investments in these operations, create critical
mass by buying multiple facilities and create efficiencies that increase return on investment, put[ting] them in a
position to, in a 5-10-year period, go back out and remarket and sell these assets for a significant profit," Mr.
Campobasso says.

5. Reuse of buildings. Another alternative to financing hospital projects that is growing in popularity is reusing both
existing on- and off-campus structures, according to Mr. Campobasso. "There's a lot more focus and emphasis on
combining operational process improvement with retrofitting existing space [rather than] building new," he says. Mr.
Campobasso predicts this trend will continue because it is an effective strategy hospitals can use to improve
efficiency without putting more real estate on their balance sheets.  "Take existing brick and mortar resources and get
more efficiency and more throughput with some modification to the facility."

6. Shared space. In addition to repurposing current buildings, hospitals and health systems are sharing real estate
with physician offices and other providers to both improve quality and reduce costs of expansion or renovations. "The
traditional medical office buildings where physicians have their own business offices, waiting rooms, clinical areas —
that paradigm is going to change and [you're going to] see more shared services. [This will] reduce real estate and
facility cost at the same time it improves patient experience, reduces cost and improves quality of care," Mr.
Campobasso says. Mr. Campobasso suggests buildings whose design supports clinical integration through shared
space can also improve patient experience by increased access and better outcomes. "Whether there to see a
physician and/or receive diagnostic services, it will be easier for the patient to move through the facility and receive
care in a timely and very efficient basis."

4 Drivers of Healthcare Capital

Financing — And How They Affect CFOs
Staff - Monday, December 17th, 2012 Print  | Email
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Capital financing has varying effects on hospitals and health systems, and much of that has to do with the size of the
organization.

For example, for-profit hospital chains can go to the debt markets with ease to fund large-scale capital projects
because of their size and scope. Franklin, Tenn.-based Community Health Systems and Dallas-based Tenet
Healthcare are just two for-profit operators that have routinely issued debt in the past year for various financing
initiatives.

Smaller, middle-market, non-profit hospitals may have a harder time with their financing options because they may be
less able to absorb all of the associated responsibilities and financing costs.

However, large, for-profit providers and smaller, non-profit organizations have both witnessed several common trends
in the past few years for why they need additional financing. Mark Tambussi, senior vice president and national
manager of healthcare equipment finance at PNC Equipment Finance, explains the four drivers behind capital
planning that are affecting all healthcare providers, big or small.

1. Impact of healthcare reform. In the current financial environment, healthcare CFOs are asking themselves,
"What is the best way to fund capital expenditures right now?"

"Should I use cash? A bond offering? Expand credit facilities with a bank group? Consider equipment financing
through leasing?" Mr. Tambussi says. "Realistically, I think it's a 'yes' to all. But that decision also centers on where
the health system is in its [financial] cycle."
The reason why CFOs are exploring these many different financing options right now is because healthcare reform,
in several different ways, requires them to do so. Transitioning from a fee-for-service environment to a value-based
model of care does not magically happen, Mr. Tambussi says. Hospitals and health systems need new capital in
order to purchase the right type of healthcare equipment and infrastructure that will transform their organizations from
inpatient-centric to accountable care organizations — which are the fundamental tenet of healthcare reform.

"Healthcare reform is about preparing for a new payment method," he says. "Access to capital is going to help
[hospitals] achieve those core initiatives."

2. Health IT initiatives. Health information technology is the most common example and the "low-hanging fruit" of
new capital initiatives these days for providers, Mr. Tambussi says.  

Hospitals and health systems are implementing electronic health records at a feverish pace in order to modernize
their facilities. Such projects can be expensive, and some hospitals are finding innovative ways to finance them. For
example, Arkansas Heart Hospital in Little Rock recently agreed to a financing deal with Siemens on health IT and
EHR financing. In October, 11 critical access hospitals in California also received capital financing from
UnitedHealthcare — a health insurer, no less — to implement EHRs and other health IT measures.

No matter the size of the system or hospital, EHRs and health IT in general are at the forefront of capital planning,
Mr. Tambussi says.

3. Strategic position in the market. Mergers and acquisitions have boomed in the hospital market over the past
several years. For-profit systems are scooping up struggling hospitals, non-profit organizations are merging with
competitors and most hospitals are active in acquiring physician practices to better align their continuum of care.

However, to enter the M&A market, hospitals and health systems must have the right financing. Mergers, acquisition
and other affiliations can be very capital-heavy. Some of the largest healthcare transactions of the past six
years have required hundreds of millions of dollars.

For example, Nashville, Tenn.-based Vanguard Health Systems bought Detroit Medical Center in 2010 for $1.22
billion. New York City-based private equity firm Cerberus Capital Management acquired Caritas Christi Health Care in
Boston (now Steward Health Care System) for $830 million in 2010. Last year, St. Louis-based Ascension Health
purchased Alexian Brothers Health System in Arlington Heights, Ill., for $645 million.

Those are, of course, extremes. However, as hospitals attempt to improve their strategic position in their primary
service areas and beyond, Mr. Tambussi says they will need the appropriate kind of financing to fund any strategic
initiatives as well as all the peripheral costs (e.g., new equipment and other start-up costs).

This trend has continued in 2012, as Livonia, Mich.-based Trinity Health closed on two credit facilities worth $931
million, potentially to help fund its recent affiliation with Newton Square, Pa.-based Catholic Health East. Franklin,
Tenn.-based IASIS Healthcare also announced it will use $115.2 million in cash left over from a debt refinancing to
fund future acquisitions.

4. Quality control reporting. Healthcare reform has played a big role in hospitals and health systems ramping up
their quality control reporting programs. Although quality control reporting is still in its infancy, Mr. Tambussi believes
it will become an even bigger financing issue in 2014 and beyond.

"Healthcare reform has an impact on this," Mr. Tambussi says, referring to CMS' Value-Based Purchasing program.
"It's small now, but it will get larger as time goes on. Reimbursement will be based on outcomes."

Hospital CFOs who are looking at these drivers of major capital financing projects need to understand one primary
concept, Mr. Tambussi explains: Make calculated decisions with full executive support on capital needs and financing
because a capital project could make or break an organization in the future.
"A well-designed capital plan, which includes equipment finance, is only going to strengthen your hospital," Mr.
Tambussi says. "It's going to help you address the many competitive and financial issues the market is thrusting upon
us.

MPORTANT BASIC FINANCIAL TERMS

EVERY NEWBIE MUST KNOW!
Updated On: Aug 7, 2020 | Finance | 0 
We have been discussing numerous financial topics through a variety of insightful articles on this
platform. This time we thought of taking you back to the very basics of finance. As a newbie,
you will get an answer to: What are the important basic financial terms or accounting
concepts that you must know?
A set of common accounting definitions that shall help you gain financial literacy even if you are
not in the said field. A short glimpse of Investing in shares or stocks is also given.
In order to become savvy about your own finances, you need to understand few useful financial
terminologies. So, here is a comprehensive list of various financial words or concepts that you
are likely to come across in your financial expedition.

Now, whether you are a salaried person, a startup enthusiast or a common man, these set of
financial basics shall help you manage your money a better way. We have tried to explain these
basic financial terms from a personal viewpoint as well as clarified their significance in business.

BASIC FINANCIAL TERMS/ACCOUNTING CONCEPTS FOR NEWBIES:

Not getting too much into the technical language, we have explained the important Basic
Financial Terms and Concepts or Accounting terms in a simple manner:
1. ASSETS :
Asset is an economic resource, something valuable that you own as an individual or a business
entity. In simple words, something that adds money value, it might be in the form of
a tangible(physical) or intangible(not seen or touched) asset.
EXAMPLES OF ASSETS:
The house and the car you own are your personal assets. As a business owner, the land &
building, the furniture, machinery, laptops, cash etc. that you have are your tangible business
assets. The goodwill, patents, trademark etc. are few intangible assets of any business or
company.

The assets that you own basically count towards your net worth. They can be easily sold to
generate money in case need arises in future. Business assets are a crucial part of a Company’s
Balance Sheet.

Don’t miss to read another important financial term: What is Current Ratio? Its Meaning &
Formula
TRY OUT & EMBED OUR FREE CURRENT RATIO CALCULATOR  ON
YOUR SITE
Now let’s continue with our list of popular basic financial and accounting concepts.

2. LIABILITIES :
Liability simply refers to what you owe to somebody. In the race of starting or growing your
business, you tend to create debts or bank loans etc. The same needs to be paid back along with
interest as applicable. The liabilities can be short term or current liabilities(to be met
immediately or after a short while) like creditor’s dues or long term like term loans(that are
spread over a particular tenure). These short term or long term debts that you need to repay
back add to your liabilities.

Do Enjoy Reading  10 Financial Planning Tips for Women

EXAMPLES OF LIABILITIES
Your credit card bill or EMI for your home loan is your personal liability that you have to bear
every month. Similarly, the secured loans or unsecured loans taken on behalf of your firm or
company count towards your business liabilities.
3. FINANCIAL STATEMENTS :
Financial statements are a great tool for business owners, investors and individuals to learn and
review the past and prevailing financial condition of any firm or company. Think it like a
quick snapshot that shall help you know about the financial situation of any company.
PROFIT & LOSS ACCOUNT OR INCOME STATEMENT :
As the name itself suggests, this financial statement summarizes the profitability situation of an
entity. Profit & Loss Account or P&L Account displays the income earned and related
expenses incurred during a particular period. The net of income and expenses amounts to the
profit/loss of a business during a set time period.
Generally a quarterly or annual P&L statement is analysed. If you wish to check whether a
company is actually profitable, then P&L shall help you get the requisite answer.

BALANCE SHEET :
A summary of the financial position of the company on a specific point of time. Assets, liabilities
and owner’s equity are an indispensable part of a balance sheet. “What a Company owns” i.e.
 its Total assets and ” What a company owes” i.e. its current as well as long term liabilities plus
the share capital form an important component of this financial statement.
Simply put, a balance comprises of following components:

 Assets 
 Liabilities
 Owner’s Equity
4. CAPITAL :
Capital is an essential pre-requisite that is required to run any business or company. The
partners or directors can introduce initial capital. But, looking at the growing needs of any
business, you may require additional funds or money to be invested by outside parties to further
manage your business. May it be working capital needs i.e. the funds needed for routine
activities of any business organisation or various other business demands, Capital plays a pivotal
role.
So, whether you wish to start a company, procure goods, purchase business assets, pay wages or
salaries to staff, incur other business expenses etc. you require money for that.

When a business requires funds to expand and grow, this can be done in 2 ways through: Equity
or Debt. A company can acquire funds through “Equity” i.e. by giving ownership of its
shares. We call this as Share Capital that refers to the sum raised by a Company by issuing
its shares.

Do Enjoy Reading  Financial Intermediaries: Meaning, Types & Importance

The second way is by applying for loans from banking or Non Banking Financial
Corporations(NBFC). This component is known as “Debt”.
To learn about stock markets, you may also like to scroll through Stock Market Basics: Terms
& Concepts You Must Know!
5. CASH FLOW STATEMENT :
A statement that depicts the money that has entered your business plus the money that exited
during a specific period of time. How much cash/money has been generated? How much of
money has been actually used in various business activities? These queries can be answered
looking at this financial statement.
Hence, in Financial accounting, Cash flow statement comprises of cash generated and used in
operating activities, investing activities and financing activities.
To summarize, the Cash flow statement helps to know the cash inflow and cash outflow and
reconcile the cash position of a company. This statement proves quite handy for investors.
6. COMPOUND INTEREST :
Compound interest is a really powerful concept that every newbie must know in order to learn to
multiply his earnings in the long run. The magical power of compounding refers to generating
returns on your principal amount plus on the returns already earned. Confused…Let’s be more
clear!
When you earn interest on your amount invested as principal plus on the interest earned
amount also, your returns are going to compound or grow at a geometric rate over the years.
COMPOUND INTEREST = INTEREST ON (PRINCIPAL+ ACCUMULATED
INTEREST)
This concept plays a crucial role in your retirement planning. The earlier you start planning your
savings and investment, the better accumulated funds you shall have on your retirement.
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Moving further, we already told you, What is Share Capital from the Company’s point of view.

What does Investing in shares actually mean for an Individual? Let’s have a look at it in a simple
way:

WHAT IS INVESTING IN SHARES OR STOCKS? INDIVIDUAL POINT OF

VIEW
We generally hear about investing in shares or stocks. But, as a newbie investor, you might wish
to know what this actually means. So, from an individual point of view when we hear Investing
in shares this refers to shares of a company.

Do Enjoy Reading  Top 10 Largest Financial Centers in the World: Best & Biggest

Thinking to invest in stocks or shares? Do have a look at Important Financial Ratios Every
Investor Must Know
A share of ownership that you shall get in a company whether private limited or public limited
company. To simplify, we can say, as an investor, when you buy shares of a company, you
become its shareholder. Now, if that company performs well and its share price rises, the
investment that you had made in it shall automatically increase. In layman terms, you shall earn
profits.
But, if due to some internal or external factors, the company performs badly and share price of a
company falls, your returns reduce. You shall bear losses. Share market is highly volatile and
huge risk is involved in share trading and investing. So, be cautious and act wisely while
investing your hard earned money.
BASIC FINANCIAL TERMS AND CONCEPTS: IMPORTANT TO LEARN
If you are willing to enter the financial arena in any way, you must understand these basic
financial terms. But, even if not, these interesting concepts can help you in one way or the other.

So, whether you are a student of commerce or wish to build a career in the finance field, your
learning base must be strong. And, whenever you prepare for an accounting job interview or a
good role in the financial sector, don’t forget to revise these simple yet crucial basics.
Moreover, you’ll become an individual investor sooner or later. So, if you can gather any kind
helpful financial information, you’ll surely gain a lot from it.

Finance is a wide arena and it’s not possible to cover all the concepts in a single article. We
shall try to cover some additional financial terms in our upcoming posts. In fact, we have already
covered banking concepts like bank rate and repo rate, difference between CRR and SLR as
well.
For a better understanding and knowledge, here we have discussed few common financial terms
that you shall encounter somewhere in your personal or business life.

If you are preparing for a bank job, don’t miss to checkout common banking interview
questions.
Now, that you know a bit about these common basic financial terms and concepts, you can
better analyse different financial data. Did we miss to mention any popular financial concept
here? Do you have a query regarding any financial terminology or accounting term? If yes, feel
free to ask us in the comment section. We shall try to explain the same in an easy manner.