The not-for-profit healthcare sector has increased its use of derivatives, or interest rate swap transactions, to raise capital and minimize risk, according to a new report by Standard & Poors.
The trend coincides with an increase in capital spending in response to changes in technology and patient-care delivery, S&P said. Funding for capital projects has come in large part from additional debt, operating cash flows or unrestricted cash reserves, but debt service is nevertheless a large expense for providers, who tend to have healthy income statements because of the essential services they provide.
Implemented to minimize cost and lessen interest-rate and cash-flow risks, derivatives are sometimes a key part of a hospitals risk-management program, S&P said. Although they can be a hedge and lower borrowing costs, they do also pose risks, according to S&P. -- by Cinda Becker