Hospitals eye Fed moves

Hospitals and health systems will be watching the Federal Reserve in January as it begins tapering its monumental $85 billion-a-month debt buyback program known as quantitative easing. That could create a ripple effect in the global bond markets.

For hospitals that rely on debt to finance their capital needs—from acquisitions to new buildings—the move could potentially increase the cost of borrowing, particularly if interest rates go up.

“That may choke down the debt refinancing that has heretofore been readily available,” said Jonathan Morphett, managing director at investment bank Avondale Partners.

The Federal Open Market Committee said it will begin to pull back “modestly” on the stimulus program that has been in effect since September 2012. The change means that the Fed will reduce its monthly purchase of Treasury bonds and mortgage-backed securities by $10 billion. But the Fed also signaled its intent to keep long-term interest rates at their current level.

Rumors in September of a stimulus reduction had caused share prices to fall and the interest rate on the 10-year Treasury note to rise. But when the news was finally confirmed, investors were relieved, seeing the measured pullback as a sign of an improving economy.

“The forecast is that interest rates will increase,” said Clark Knapp, principal at Deloitte Consulting. “Even if you double the interest rates that you have today, you still have historically low interest rates.”

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