Healthcare executives pitched so many positive stories to bond buyers at the fourth annual not-for-profit healthcare investor conference in New York last week that some investors said it was difficult to keep them all straight.
The conference, held at the Plaza Hotel, was the best attended so far, with 400 investors, analysts and presenters.
"The healthcare sector has become a popular place for funds to invest. There's less volatility and more predictable earnings," said Frederick Hessler, a managing director at Citigroup, a co-sponsor along with the American Hospital Association and the Healthcare Financial Management Association.
In fact, all but six of the 30 organizations whose executives gave presentations reported higher operating margins in fiscal 2002. Even challenged companies such as the Detroit Medical Center, CareGroup Healthcare System and Mount Sinai Medical Center boasted improvements. Despite these rosier scenarios, however, ratings agencies have downgraded more not-for-profit hospitals than they upgraded in this year's first quarter because of previous years' declining equity and growing debt.
The positive bent of the presentations did not go unnoticed by analysts, one of whom noted that the "real dogs" were not invited to speak.
Another investor, who asked not to be named, wondered whether hospitals' huge capital expansions such as in cardiac services and new patient towers, which are fueled by low interest rates, would backfire if demand slackens or reimbursements fell. "It's as if because they can borrow, they are building," the analyst said. "Hospitals are stupid. They do whatever is trendy."
In the first year, organizers weren't sure that an investor conference format, normally used by public companies, would work for not-for-profits. But the show has become a linchpin for industry-investor relations. This year it drew at least 60 bond funds or about 75% of the buyers of not-for-profit healthcare debt, Hessler said.
Organizers invite a blend of large systems that frequently tap the debt market and smaller organizations that plan to issue debt soon (See chart). All but three of this year's presenters-Evangelical Lutheran Good Samaritan Society, a long-term-care provider; Kaiser Permanente, an integrated delivery system and HMO; and Harvard Pilgrim Health Care, an HMO-are primarily acute-care providers.
Often, it's the only chance not-for-profit healthcare executives and investors have to meet, though they may talk by phone several times a year. "It's a fantastic opportunity," said Alison Fleury, senior vice president of business development at Sharp HealthCare, which presented for the first time. Sharp plans to issue about $140 million of debt in the next three months.
The sessions were closed to media not affiliated with the sponsoring organizations.
Many presenters said investors asked better questions focusing on industry trends such as malpractice costs, physician-hospital joint ventures, pension funds and state Medicaid financing.
"Investors are much more sophisticated," said Kris Zimmer, chief financial officer of Norton Healthcare. "Three years ago I might have been asked, `What about managed-care penetration in your market?' Today I was asked, `What are the percentages of your three largest payers and what specific increases from them do you expect over the next three years?' "
Hessler said next year organizers might add panel discussions where hospital executives could discuss industry challenges.
Diane Cecchettini, president and chief executive officer of MultiCare Health System, who gave her first address to an investor audience, said she was not intimidated. The former practicing nurse ended her talk with a story about her system's efforts to improve the care of diabetics. "This is not any harder than the shots I get at home," she said, referring to talks with doctors and nurses.