Many nonprofit hospitals across the nation are facing financial challenges, and they may soon face higher borrowing costs. Here are five things to know about the financial pressure nonprofit hospitals are facing.
1. Nonprofit hospitals and health systems issue tax-exempt bonds to finance capital projects. Under the House Republicans' tax plan, interest on newly issued private-activity bonds would no longer be tax-exempt.
2. This change would reduce financing options for some healthcare organizations by raising the cost of capital, according to S&P Global Ratings. "From a credit perspective, higher borrowing rates can lead to budget imbalances, a challenge for all, and a hallmark of struggling credits," said S&P.
3. The move to eliminate tax exemptions for new private-activity bonds is not included in a bill passed by Senate Republicans on Dec. 2.
4. The threat of higher borrowing costs comes as nonprofit hospitals' finances are already under pressure. According to data compiled by Bloomberg, at least 26 nonprofit hospitals across the nation are already in default or distress. These facilities have notified bondholders of financial challenges, such as having too little cash on hand, that make bankruptcy more likely, according to the report.
5. Many of the nonprofit hospitals under the most financial pressure are in rural areas with "older, poorer and sicker" patient populations, Margaret Elehwany, vice president of government affairs and policy at the National Rural Health Association, told Bloomberg. She said approximately 44 percent of rural hospitals operate at a loss.