Analysts warn that hospitals face a credit crunch, further underscoring the importance of raising funds and investing the money wisely.
It seems the bankruptcy of Allegheny Health, Education and Research Foundation in Pittsburgh has prompted bond buyers to take a harder look at healthcare offerings. Standard & Poor's already had lowered 21 healthcare credits through early May, compared with 28 downgrades in all of 1998.
This signals higher interest rates and less available capital, especially for those hospitals with strong competition and budget problems.
Successful fund raising not only can help lower the amount borrowed but sends a comforting message to investors and bond-rating agencies.
When it comes to investing, the challenge for hospital financial managers is to decide how aggressive to be. Although the stock market's lusty performance has spawned many a genius, the returns probably won't last.
Many have reaped riches by investing in the Internet and information technology. But the ".coms" and software stocks should carry a warning. Nobody knows this better than hospital and health system executives.
After years of dealing with information technology, many healthcare managers remain baffled by the industry. Their lack of knowledge has propelled hospitals down a trail of inflated expectations and unrealized goals.
Wall Street also may have some knowledge gaps, but it does pay attention to two things: hard numbers and anything new and flashy.
McKesson HBOC, created by the merger early this year of top drug distributor McKesson Corp. and the biggest healthcare information systems company, HBO & Co., has twice reduced previously reported profits. Both times, the stock nose-dived.
In the flash department, providers are astounded by the multibillion-dollar powerhouse formed from the merger of Healtheon Corp. and WebMD. The combined market value of the two fledglings has reached nearly $20 billion-all this for a company with a vaguely understood product that it intends to give away for a year or more.
Obviously, investing in these and other information-age stocks offers a high degree of rewards-and of risk.