The 130th Annual Meeting of APHA

Abstract #45327

Caryl E. Carpenter, MPH, PhD, Health & Medical Services Administration, Widener University, 1 University Place, Chester, PA 19013, 610-499-4384, cec0001@mail.widener.edu and Michael J. McCue, DBA, Department of Health Administration, Virginia Commonwealth University, P.O. Box 980203, Richmond, VA 23298-0203.

This study involved a comparison of the market, operational, and financial characteristics of hospital/system-issued, tax-exempt bonds in a 15-month period before the AHERF bankruptcy in July of 1998 (PRE)to hospital/system-issued bonds in a 15-month period after the AHERF bankrtupcy (POST). The analysis demonstrated that despite the decline in market rates for tax-exempt securities in the POST period, bonds issued by hospitals and systems carried higher coupon rates than they did in the PRE period. There was a significant decline in the proportion of hospital/system bonds that were insured from the PRE to the POST period. Bond insurance firms appeared to require higher levels of cash on hand and debt service coverage in the POST period, which may explain, in part, why the proportion of insured bonds declined. Bonds issued by individual hospitals were more likely to be insured than bonds issued in the PRE period; in the POST period the reverse was true, suggesting that systems were better able to meet the higher credit quality standards required by bond insurers. We conclude that hospitals are now viewed as riskier instruments than they were prior to the AHERF bankruptcy. This is reflected in higher coupon rates for both insured and uninsured bonds, fewer insured bonds, and a decrease in the benefit of insurance. This decline comes at a time when many hospitals need to replace aging assets and acquire new technologies in response to increased inpatient utilization.

Learning Objectives:

• To demonstrate the decline in credit quality for hospitals as a group after the financial failure of one hospital system.

Keywords: Fiscal Policy, Hospitals

Presenting author's disclosure statement:
Organization/institution whose products or services will be discussed: None
I do not have any significant financial interest/arrangement or affiliation with any organization/institution whose products or services are being discussed in this session.