Wouldn't it simplify our lives, mused a couple of financial officers a while back, if multistate systems that issued bonds could handle all the legal paperwork through one state instead of each state in which the systems own facilities?
That premise prompted Liz Alhand and Carrol Aulbaugh to approach the Missouri General Assembly two years ago. Alhand, senior vice president of finance at SSM Health Care System, had just completed a complex multistate financing. Aulbaugh, chief operating officer at St. Louis-based Sisters of Mercy Health System, saw the value of Alhand's proposal early on.
The Legislature granted their wish last spring, and Gov. Paul Celluci signed the measure May 13.
As of Aug. 28, hospital systems that operate facilities in Missouri can issue bonds through the Missouri Health and Educational Facilities Authority to cover the financing needs of all their far-flung enterprises. They no longer need to file documents with the bond-issuing authority in each state in which they do business.
Alhand estimates her system would save $500,000 on a $200 million bond issue. For a system with 21 hospitals in four states, the savings are considerable.
The change could likewise save Sisters of Mercy a sizable chunk of change. Jim Jaacks, Sisters' chief financial officer, explains how the process worked before: "Hypothetically, if we were to issue bonds for the benefit of our hospitals in Oklahoma and Missouri and Arkansas, in the past we would have had to work with the Arkansas Development Authority, the Oklahoma authority and all their related parties, and Missouri to consummate this transaction. The bonds are issued by them on our behalf. We'd have to work through them to demonstrate that we're a good credit."
The bonds are backed by the system's credit but issued by the state authority.
"We have a transcript of proceedings, a bound book," Jaacks says. "Those are usually three inches thick. You're looking at doing those three times over for each issuing authority in each state."
But now the Missouri authority can process all that paperwork.
This agency, comparable to the bond-issuing authority in every state, floats tax-exempt bonds for hospitals and other not-for-profit healthcare organizations.
Colorado and Wisconsin have similar laws. In Wisconsin, a 1996 law allows organizations to borrow to support operations in contiguous states. The Colorado Health Facilities Authority has handled three bond issues under its new law: two for the National Benevolent Association, whose members are facilities for the disabled and for people who need long-term care, totaling $33.3 million; and one for the Volunteers of America, which represents assisted-living facilities, for $6.6 million.
"The three multistate financings the authority has done have truly benefited these borrowers," says Kathy Powers, general counsel to the authority. "They've saved them quite a bit of money."
A law like this is a natural for Missouri, which heavily exports hospital management services. The state is home to seven not-for-profit multistate hospital operators. One of those, St. Louis-based Daughters of Charity National Health System, operates 34 hospitals in 12 states but has none in Missouri.
Systems based in the Show Me State control a total 121 hospitals, of which only 43 are in-state. The remaining 78 are located across the country. Only two not-for-profit hospitals in the state-St. John's Regional Medical Center in Joplin, a Catholic Health Initiatives facility, and Shriners Hospitals for Children in St. Louis-are controlled from outside the state.
St. Louis and eastern Missouri also are home to a cluster of Tenet hospitals, but investor-owned companies do not borrow through the state bonding authority.
Jaacks says that if the Missouri law fulfills its promise, other states may try to do the same thing. "If I were Arkansas, I'd continue to vie for Sisters of Mercy's business." He foresees the day when he could go to Arkansas and ask, " 'How much will you charge me to issue bonds in your state?' Whoever gives me the lowest price, that's who I would do business with. Assuming (other states) do progress down this path, that should reduce costs for the issuers. It will become a bidding war."
Daughters of Charity didn't lobby for the bill, says Susan Nestor, senior vice president of advocacy and external relations. However, "we think it's real interesting," she says. "It might be something we would consider using in the future."
Carondelet Health System is based in St. Louis, but only two of its 14 hospitals are in Missouri. Tanya Rhodes, vice president of finance, says that although her system played no part in the passage of the bill, "we do think it will be useful for the system in future financings."
Health Midwest, based in Kansas City, Mo., lobbied for the bill, even though most of its hospitals are in Missouri. When the system wants to issue bonds for improving its two Kansas facilities, it would consider using the Missouri procedure, says Barry Seward, a Health Midwest lobbyist.
Michael Stanard, executive director of the Missouri authority, in suburban St. Louis, says his board is trying to develop guidelines to implement the new law.
"One of the big things is how to go about getting public approval through a hearing," he says.
Federal law requires a hearing in the state when tax-exempt bonds are issued. "If the hospital was in Texas, they'd have to hold a hearing in Texas," Stanard says. "We're still not sure how they'd do that. It would depend on the jurisdiction. Different state law applies.
"If it all works as intended, the institutions can save money and help the citizens of the state," he says.
There are too many variables to estimate how much money the systems will save, Stanard adds.
In 1998 the Missouri authority issued $1.1 billion in bonds, of which $770 million went for healthcare and $330 million went for education. Stanard says he expects the new law to increase the size of the typical issue his office handles, but he doesn't foresee more issues.
Stanard says he does worry about whether the Missouri program will take transactions away from other states.