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The new tax bill, as it exists in Congressional Conference Committee, may remove the ability of nonprofit (NFP) hospitals to issue tax-exempt bonds. Hospitals are particularly concerned about measures to limit tax-exempt financing for not-for-profit organizations, restrict deductions for interest payments, and impose an added tax on compensation for high-earning executives (salaries exceeding $1 million). Last week, Modern Healthcare reported that “Hospitals say ending or limiting tax-exempt bond financing would jack up their borrowing costs and hurt their ability to make capital improvements, particularly for smaller and midsize hospital systems.”

Yesterday, Forbes added this, in a story entitled “Catholic Hospital Mega-Deals Pressure For-Profits Like Tenet And HCA” (https://www.forbes.com/…/catholic-hospital-mega-deals-pre…/…): “The more than 300 Catholic hospitals involved in these deals mean fewer acquisition targets for HCA, Tenet, Community and other for-profits. These investor-owned giants are already seeing their hospital admissions deteriorate in the move to value-based care that emphasizes payments to outpatient providers and doctor’s offices to make sure more care is given upfront before it reaches an inpatient facility. In Tenet’s third quarter, for example, ‘same hospital patient revenue decreased 2.3%’ which ‘reflects a 2.2% decrease in adjusted admissions,’ the company said last month.”

Why it matters:
– Tenet is evaluating options for, including the possible sale of, its 77 hospitals and 460 outpatient centers
– Lutheran Health Network owner Community Health Systems (CHS) has been focused on de-leveraging its large debt through sales of hospitals. Forbes says: “HCA may consider buying rival CHS given its problems of late. Shares of CHS are down more than 20% this year.”
– According to the Wall Street Journal, Ascension Health and St. Joseph Health (Providence, RI) are in talks to merge and create the nation’s largest hospital chain, with 191 hospitals, as opposed to current-industry-leader HCA, with 177
– Merger activity in an attempt to benefit from scale reflects declining hospital admissions and in-general lower operating income for most hospitals.
– Already struggling rural hospitals, like the many independent hospitals in the Fort Wayne region, may be particularly disadvantaged if access to capital from tax-exempt bonds is limited.
– All of this takes place against a background of changes brought about by the population health measures in the Affordable Healthcare Act (ACA), continued attempts to amend the ACA, and upcoming changes in taxation laws.