The not-for-profit healthcare group at credit rating agency Standard & Poors apparently holds finance conferences about as frequently as some hospitals issue debt: on an as-needed basis .
Last months conference at the Hyatt Regency Grand Cypress in Orlando was the first since 2004 when the venerable S&P held it near its headquarters in New York. Other conferences in the past have been held in San Francisco and Palm Desert, Calif.
One might wonder who at S&P decided to hold the generally biennial event in Orlando during spring breaka double whammy for the child-adverse, but right in keeping with the family-friendly, low-key style of the S&P healthcare group. Some of the attendees said that unlike most healthcare conferences where attendee recruitment begins months and months in advance with e-mails, direct mail and print advertisements, announcement of the S&P conference was muted with a few discretely placed magazine advertisements. I had to seek it out, said Tracy Butler, treasurer at Salem (Ore.) Hospital.
With the theme Transformational Change in Healthcare: Widening the Credit Chasm? the conference was attended by more than 200 people with some kind of interest in the credit quality of not-for-profit hospitals. The coveted guests that everyone wanted to speak with were the providers, who seemed to be far outnumbered by bankersthe vendors of the hospital financial world. Institutional bond holders, bond insurers, financial advisers and other lenders such as the ubiquitous GE Healthcare Services rounded out the group.
Bankers may have had other things on their mind, but for providers like Butler, the conference was more of an educational experience than a networking opportunity, she said. Sessions dealt with the all-too-familiar issues: healthcare reform, both credit and clinical quality, and pay-for-performance.
Joe Sebastianelli, president and chief executive officer of the large but conscientiously managed Jefferson Health System in Philadelphia, set the tone for the conference, describing his decentralized systems vigilant efforts to balance the challenges of sustaining strong, steady growth in an overbedded, capital-challenged market. Displaying the pragmatism that has distinguished the Quaker City since its founding, Sebastianelli, a former health insurance executive, is spearheading some unique strategies for negotiating the best possible terms with payers while at the same time respecting that they hold the purse strings on the vast majority of the systems net patient revenue.
S&Ps outlook for the not-for-profit industry is brighter than the feared for-profit sector but not nearly as glowing as it is for the health insurance industry. You could practically hear providers drooling as S&P director Shellie Stoddard described the pace with which upgrades have outpaced downgrades in that sector, so that in 2006 more than half of the 42 credits have ratings of A or above. Its not that not-for-profit hospitals have a lot to complain about, creditwise. S&P is not alone among the credit rating agencies in giving hospitals a stable outlook, but in another year or two all bets are off. So if there is a message, it is to enjoy the good times before theyre gone.
The theme that kept getting hammered home, beginning with Sebastianellis keynote address, was that financial currents are such these days that the strong keep getting stronger while the weak keep getting weaker. At Jefferson, for example, operating income has climbed from less than break even, or negative 1%, in 2002 to nearly $180 million, or more than 4%, in 2006. Martin Arrick, S&Ps managing director of the healthcare group, noted that the haves are increasingly bigger systems like Jefferson. Ascension Health will likely make more than $1 billion this year, he said. Liz Sweeney, S&P director in not-for-profit public finance ratings, noted that on the other side of the chasm are hospitals struggling to get by, eking out less than a 1% profit margin at best. The credit disparity will likely widen as bad debt and charity care levels continue to swell, she said.
Except for an opening day golf outing, the 48-hour conference was sober-minded and pretty much all business, all day. The second day ended with a relatively carefree cocktail reception in the Hyatts Wilderness Area, which apparently meant it was outside on the well-manicured grounds.
The wine and drink flowed along with appetizers. Butler, the Salem Hospital treasurer, was standing at a table enjoying the smoked pork loin and sampling the sui mai and spring rolls that were coming around with waiters, sharing her story with new acquaintances about how shethe daughter of a female gynecologist in Harbin, Chinaended up as the treasurer of a 417-bed hospital in Salem, Ore. As a physician, Butlers mother, Hong Wang, was an employee of the state-owned No. 4 City Hospital in Harbin until last year when she reached the mandatory retirement age of 56. She is now working at a private specialty hospital in Zhuhai in southern China.
In 1997 at the age of 16 and at her mothers insistence, Butler left home for Switzerland where she attended high school and college. She eventually came to the U.S. to attend graduate school at Willamette University, also in Salem, earning an MBA. She married a man she met in graduate school and found work doing some internal consulting and financial modeling in the healthcare field.
She has been at Salem for five years, where she is managing $110 million of Salems $260 million investment portfolio. Apparently the hospital is fairly sophisticated financially despite its independent status. There have been two bond issues of more than $300 million in the past three years involving difficult-to-fathom swaps. Most hospitals in the U.S. dont have treasurers, she acknowledged.
After explaining all of that, Butler giggled. You know, she said, my mother still does not understand what I do. She always asks me: Why does a hospital have a treasury?
Good question, Dr. Wang. Are you up for a two-day-conference in about two years at a yet to be named location?