Healthcare systems that want to add a hospital, office building or clinic to their network but don't want to pay for the expansion upfront can ask development companies to build it for them.
That's the message Terry Ward, chief executive officer of Houston-based healthcare finance development company the Ward Group, will relay at his HFMA session, "Off-Balance-Sheet Financing," on Wednesday, July 1, at 1 p.m.
Hospitals shouldn't tie up enormous amounts of their capital in bricks and mortar, considering that most healthcare companies lose money or receive only minimal returns from real estate, Ward says.
For example, many hospital companies build a medical office building and rent space to doctors. "I see a lot of times that they're losing money," Ward says. "I try to show them they can get someone else to build it and lease it back." His company would hold the lease.
That way, debt from real estate expansion stays off the company's balance sheet. Instead, only the rental payments appear as expenses.
"It's not your debt; it's my debt," Ward says.
Rental rates depend on a company's credit status, he says.
Ward, who previously helped retail chains develop lease-back programs, will distribute a balance sheet from the drugstore chain Walgreen Co. at the session to show the effect of off-balance-sheet financing.
"Other industries that don't want to be in the real estate business have found a way to finance real estate," Ward says. "They don't want it to be on their balance sheet."
Ultimately, healthcare organizations must change their view of real estate, Ward adds.
"Many of them have looked at it as a part of doing business," he says. "There's a bigger value in it than healthcare leaders realize. It's an asset vs. a liability."