CHICAGO - Increasing consolidation of the health care market may strengthen hospital debt but it may also pose a danger to hospitals that fail to join health care networks, health care officials said last week.
When health care institutions merge, their financial position becomes stronger, which can bolster an institution's outstanding debt, said Emmeline Rocha-Sinha, vice president and manager of the health care department at Municipal Bond Investors Assurance Corp., at the Bond Buyer Midwest Public Finance Conference in Chicago on Thursday.
Regardless of federal health care reform initiatives, market forces are driving health care institutions across the country to merge in order to provide a broad spectrum of services, according to other officials who spoke at the conference.
Rocha-Sinha noted that the Mid-west has undergone more consolidation than other areas of the country, such as the Northeast.
She said she is "very optimistic" about the strength of Midwest health care institutions, which have strong operating margins and low debt, compared to institutions elsewhere. She attributed their strength partly to the "general conservative nature of the Midwest."
Rocha-Sinha said that less than a third of the health care credits insured by MBIA are in the Midwest.
Richard S. Blair, finance and administration officer for HealthSpan Health Systems Corp., a Minneapolis-based multihospital network, said that the mergers that formed Health-Span "ensured the safety" of its $383 million of outstanding debt.
HealthSpan, which has 26% of the market share in the Minneapolis-St. Paul area, is the product of five mergers by 13 institutions, Blair said. He said that HealthSpan is in the process of merging with Medica health plans to form the Allina Health System, which will have $392 million of outstanding debt.
Blair said the Minneapolis health care market is consolidating faster than others in the nation.
While mergers may benefit health care systems, community and rural institutions outside of networks could face financial trouble, according to some of the health care officials.
Rocha-Sinha said many rural hospitals could be forced to shut down if they cannot interact with larger systems that provide low-cost infant to geriatric care. The managed competition plan promoted by President Clinton does not address the fate of rural hospitals, she said.
Laura J. Tauber, senior underwriting officer at Capital Guaranty Insurance Co., said survivors of the changes in the health care industry will include:
* Large, established hospitals with a good market share.
* Vertically integrated systems that may comprise one hospital or more.
* Institutions that have strong affiliations with other hospitals.
* Hospitals with double-barreled support from a tax base and hospital revenues.
