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The Credit Crunch Is The New Health Care Crisis

Cross-Posted from Erick’s other little blog, PeachPundit.com

Southern Regional Medical Center is not the only hospital on Atlanta’s South side dealing with the credit crisis and slow economy.   Piedmont Healthcare, operators of Piedmont Hospital in Buckhead, Piedmont Fayette in Fayetteville, Piedmont Mountainside in Jasper, and Piedmont Newan Hospital in Newnan, has halted the construction of their new Newnan campus to replace the aging facilities they currently operate.

Piedmont officials blamed the “current instability of the debt market” in its decision to “pause” the project for the next few months.

“We had planned to go to the bond market to finance most of the project, and there’s just not a market out there now,” Piedmont spokeswoman Nina Montanaro said Thursday. Financing the hospital now “would cost us millions more,” she said.

 

An update in today’s AJC outlines the problems faced by Southern Regional Medical Center that I posted about earlier.

Without the county’s help, the hospital will likely have to write a $40 million check to SunTrust at the end of the month. The hospital has $48 million in reserves, Bonn said.

But note that while Southern Regional is operating at a small operating loss, the current crisis is their inability to renew existing financing, even though they have enough cash to pay both the existing note, and fund two years of losses at the current burn rate:

The hospital ended the 2008 fiscal year with a $7.07 million loss, $3.76 million of it on hospital operations and the rest from investments, hospital officials said.

These are not two new “Grady” problems of hospitals who have had financial issues for decades without any form of accountability.  Quite the contrary.  Piedmont Healthcare is probalby among the most financially sound organizations in the South.   Given the size of its organization and the community that Southern Regional serves, an operating deficit of less than $4 Million is hardly a signal to pull a panic button, much less shut down the entity.

Both of the above problems stem directly from the on-going credit crisis.   Southern Regional is having its financing pulled from a bank that has received one round of TARP funds for $3.5 Billion, and has decided to go back for an additional $1.4 Billion.   Southern Regional clearly has both the cash available and reserves to service the debt, and yet they can’t get their financing renewed from a bank that the feds are giving $49 Billion in additional borrowing ability.   So, anyone want to say the TARP program is working thus far?

Piedmont’s decision, however, illustrates another angle to the credit crisis.  While headlines abound about interest rates being “near or at zero” this week, the hospital has decided that the cost of borrowed funds would be prohibitively expensive to continue at this time.  Where is the disconnect?  It is in the risk premium.  Banks and other lenders are still afraid that when they lend money, even to the absolute safest customers like a Piedmont Hospital, they still are so afraid that they will not be repaid that they are putting a huge premium on money that they are getting for almost nothing before they will lend it.

While there are many problems facing healthcare providers today, the problems experienced by these two entities are not best illustrated by uninsured patients or by low medicare reimbursements.  They are just two organizations like many others caught in the current credit crisis.

When Piedmont Hospital can not find a lender that will loan them money at an acceptable interest rate in this “low rate” environment, imagine what an average small business must be facing.   Regular posters like UMustBeKidding (auto body) and DrJay (Dentistry) have already presented some issues their businesses are facing.  And available credit to all but the best individuals has essentially disappeared as well.

Fear has replaced rational expectations in today’s credit market.  Stories like the above will become more common in the weeks ahead without a change in direction.  I remain convinced that the federal goverment must get behind some plan to get consumers and businesses the credit they are able to prove they can handle.

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