Corporate executives in Massachusetts want to know whether the state's not-for-profit healthcare providers have the financial means to pay off existing debt and access capital for future needs.
Because healthcare is the largest industry in Massachusetts, the business community has taken a keen interest in providers' ability to make debt-service payments and deal with overcapacity issues, said Alan MacDonald, executive director of the Massachusetts Business Roundtable, a group of 75 corporate executives.
"The challenge in healthcare is how do we reconfigure what we have to meet future needs," he said.
On Sept. 14, members of the roundtable will raise the issue at a special session co-sponsored by the Milbank Memorial Fund, a New York-based healthcare foundation. The Boston meeting will bring together executives of insurance companies, major corporations and not-for-profit hospitals.
In recent years, there's been a big buildup of capital and a noticeable decline in inpatient hospital use, Mr. MacDonald said. Not-for-profit healthcare organizations in Massachusetts have $4 billion in debt outstanding, and the percentage of occupied beds has declined to 68.7% in 1993 from 74.7% in 1990.
"So the question is, `What have we done to ourselves and how are we going to get out of it?'*" he said.
Concerned that capital financing issues have been overlooked in the healthcare reform debate, Milbank is teaming up with business leaders and state health policy officials to discuss financing needs.
The Massachusetts Business Roundtable will kick off discussions next month. And later this fall, California's Office of Statewide Health Planning and Development will co-sponsor a meeting on capital financing issues.
According to a draft policy paper published this spring, Milbank estimates that not-for-profit healthcare providers nationwide have $115 billion in tax-exempt debt outstanding and will need to raise another $11 billion annually to maintain plant and equipment. In addition, healthcare providers will need to raise an undetermined amount of new capital to build outpatient and long-term-care facilities.
Hospitals that have the ability to issue tax-exempt debt are generally stronger players, said Christopher Conley, a senior vice president at Lehman Brothers in New York, who helped prepare Milbank's policy paper. They have many options for reconfiguring healthcare services and redeploying capital, he said.
Still, there will be some that aren't able to restructure, he said.
In today's environment, the primary concern is the ability to meet debt-service payments, said Michael McCue, an associate professor of health administration at Virginia Commonwealth University in Richmond. As integrated delivery systems develop, "that's going to increase the risk."
Failure to pay existing debt will raise the cost and reduce the availability of new capital, according to the Milbank paper. As a result, hospitals could find themselves unable to construct and equip needed facilities. Decisions to reduce services could be based on financial considerations rather than community needs.
Today's overbuilt, specialty-driven healthcare system took years of planning to complete, said Daniel M. Fox, Milbank's president. "I would argue that it should take at least as much planning to shrink that system," he said.