Nonprofit Hospitals Urged to Diversify Endowments
"So the cost and the financing of these is a different question than it was 10 or 15 years ago when you had a big central complex and you had to build a new wing or you had to gut the old wing and put new stuff in it every 10 years."
Jarvis says board members at one hospital talked about setting up clinics and operating rooms in big box retail buildings, "all on a very light and mobile basis, with walls that could be moved around as the need arose, and much less expensive."
He says it's time to "call out the rating agencies" for their failure to recognize and adapt to the changing landscape in healthcare.
"The interests of bond holders are poorly served by the existing endowment structural model that exists now," he says. "Over the long term, if you are issuing a 20-, 40-, 50-year bond you want a well diversified portfolio because only a well diversified portfolio is best positioned to provide the best risk-adjusted return that is going to be part of the financial health of the institution that will be repaying the bonds."
Jarvis says interest rates are at Zero now, and can't go any lower.
"Therefore bond portfolios are going to go down in value when interest rates start to rise. Rating agencies must know this. They are not stupid people," he says. "I would posit that having less dependence on this yield curve risk would be rather prudent risk management but we don't see a change coming in the description of what the optimal model should be. That is partly why I wrote the paper, to put together things that are not terribly novel but are lying around in plain sight."
John Commins is a senior editor with HealthLeaders Media.
- Providers Lag as Consumers Set Agenda
- Look Beyond Nurse-Patient Ratios
- Reform Puts Vise Grips on Physicians
- Esther Dyson Launches Population Health Challenge
- Crisis Spurs Healthcare Payment Reform in Arkansas
- Hospital Groups Back NQF Report on Patient Sociodemographics
- ICD-10 Delay Alters Provider, Vendor Prep
- NPP Demand Rising Under Value-Based Care Models
- Medicare Opt-Out a Viable Physician Strategy
- Reduce Readmissions by Activating Patients to Do 'Self-Care'