A healthcare bond-financing task force has agreed to adopt a common set of guidelines for disclosing financial and operating information on healthcare revenues bonds.
The guidelines were developed by the Principles and Practices Board of the Healthcare Financial Management Association and published by the HFMA in May.
The HFMA said it's the first time all segments of the healthcare bond industry have agreed on guidelines for ongoing disclosure of providers' financial and operating status.
The task force included the HFMA, the National Council of Health Facilities Finance Authorities, several state healthcare finance authorities and eight of the nation's largest healthcare investment banking firms.
The participating investment bankers were Goldman Sachs & Co.; CS First Boston Corp.; Morgan Stanley & Co.; Prudential Securities; Merrill Lynch & Co.; Lehman Brothers; Bear Stearns & Co.; and John Nuveen & Co.
The HFMA's "Statement No. 18," as it is called, recommends that all healthcare providers annually disclose financial and operating information. The statement provides guidance on the types of data that should be disclosed, such as audited financial statements and a management discussion and analysis of financial and operating information.
The SEC's proposal. The task force's adoption of the HFMA's guidelines responds to a proposed mandate by the Securities and Exchange Commission.
In March, the SEC published a proposed rule that would make it illegal for a broker or dealer of municipal securities to underwrite bonds unless the issuer agrees to provide annual financial information and timely notices of material events, such as ratings changes or delays in principal and interest payments (May 2, p. 72). It is intended to provide bond buyers with current information on healthcare issuers' financial status.
The proposed SEC rule could go into effect as early as this fall.
By adopting the HFMA's guidelines, task force members agreed that it is healthcare providers' responsibility to provide ongoing disclosure. Such language will be incorporated into bond documents at the time of an initial sale.
Task force members didn't want to have situations in which bond authorities, attorneys and underwriters were saying different things about how to make the required disclosures, said Edward Murphy, executive director of the Massachusetts Health and Education Facilities Authority and co-chairman of the task force.
Healthcare finance groups generally support the SEC's attempt to increase such information, known as secondary disclosure. In fact, much of the information is already required by rating agencies and bond insurers. But industry groups have asked the SEC to make certain changes. For example, the HFMA wants the SEC to adopt its disclosure guidelines, which specify the types of information to be disclosed annually, as the required disclosure. The SEC's proposed rule lacks "specific guidance" on what should be disclosed and allows underwriters to require more frequent disclosures, the HFMA said.
The opposition. Meanwhile, groups such as the National Council of Health Facilities Finance Authorities, the Public Securities Association and the Municipal Securities Rulemaking Board oppose a provision of the SEC's proposal that would prevent bond dealers from selling securities unless they have reviewed the information provided by issuers under the rule. The groups said such a requirement would stop trading in those securities until volumes of information had been read, effectively reducing liquidity in those securities.
Finance authorities and brokers also urged the SEC to delay implementation of their rules until a national repository system is up and running. Under the SEC proposal, such national repositories would be responsible for collecting, storing and disseminating annual financial reports and other material event information.