But interest rates on the 10-year Treasury note—a good benchmark for other long-term, fixed-rate notes—are already on the upswing. And as the cost of capital increases, so too will the pressure on income statements and cash flow, especially for hospitals already struggling to make ends meet.
“There's going to be an inherent pinch,” said Steve Kennedy, senior vice president at Lancaster Pollard, a financial advisory firm. “Those hospitals that are not investment-grade, I think that's going to be the most challenging.”
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All three credit-rating agencies have negative outlooks on the not-for-profit hospital sector. “There's opportunity in the healthcare space but it's reserved for the systems that have the flexibility to take advantage of it,” he said.
Easy access to debt financing has been one of the factors propelling healthcare mergers and acquisitions, and particularly big-ticket acquisitions. Still, no one is expecting a damper on consolidation.
“In general, we expect access to capital to remain good,” said Karen Anillo, senior vice president and team leader of the healthcare industry banking group at Associated Bank. “We see continued M&A in almost all the sectors of healthcare. Scale is key in this new environment.”