Bigger operating margins and quality, quality, quality were the upbeat messages not-for-profit health systems and hospitals hammered home at their annual confab for bond investors in New York, as the industry embarks on a capital spending binge.
Organizers of the fifth annual Non-profit Health Care Investor Conference reported a record 520 registered attendees and speakers, up from 380 last year, including holders of at least 90% of outstanding tax-exempt healthcare debt.
Launched to woo nervous investors during an industry slump, the event has evolved into a networkers' nirvana where major systems such as Ascension Health, Catholic Health Initiatives, Trinity Health and Catholic Healthcare West and a changing rotation of smaller issuers tell their stories to the market.
Management teams from 32 hospitals and systems that weren't making presentations attended to meet investors and learn what colleagues are doing, said Fred Hessler, co-head of the healthcare group at Citigroup, which along with the American Hospital Association and the Healthcare Financial Management Association sponsored the event.
Modern Healthcare was not allowed to attend presentations but could attend general sessions and interview attendees.
"This is a very efficient use of time because we can get a whole scan in a day and a half of the big systems: what's working, what the strategies are," said Vincent Schmitz, chief financial officer of MultiCare Health System, Tacoma, Wash., which plans to issue $150 million in bonds on June 22. Proceeds will be used to expand surgical capacity and buy digital-imaging equipment, among other things.
Scripps Health, San Diego, also plans to issue debt this year for expansions and improvements, after a four-year financial turnaround. "We saw this meeting as our coming-out party. We wanted to tell the Wall Street community that we're back," Scripps' Chief Executive Officer Chris Van Gorder said.
A recent HFMA survey indicates that hospitals plan to increase capital spending 14% annually over the next five years, and half said they intend to rely on bonds for financing.
Despite larger industry financial problems, 26 of the 31 presenters reported improved operating margins in the last year. Several touted quality and patient-safety initiatives intended to position them for emerging quality-based reimbursements, highlighted by a keynote address by Sister Mary Jean Ryan, president and CEO of SSM Healthcare, St. Louis, the first hospital system to win a Malcolm Baldrige National Quality Award.
But it's not clear that the link providers attempted to draw between quality and financial performance registered with bond buyers. During a panel discussion, some investors said it's difficult to judge quality.
Investors praised hospitals for enhancing financial disclosure practices but stressed that there's room for improvement in areas such as cash flow statements, consolidation of non-obligated businesses, and enhanced management discussion of issues such as staffing, managed-care contracts and interest rate swaps.
Investors also called for more rigorous board oversight.