Jul 9 2010
"Hospitals nationwide are tangling with Wall Street to get out of disastrous wagers that have complicated their financial problems,"
The Wall Street Journal reports.
"Some hospitals are paying millions of dollars in penalties to get out of derivatives contracts, after betting incorrectly that interest rates would rise." Others are facing higher interest rates. And at many of these facilities, these financial arrangements have contributed to layoffs and other negative consequences. "More than 500 nonprofit hospitals—at least one in six—bought interest-rate 'swaps' in a bid to lower their borrowing costs, estimates Municipal Market Advisors, a Concord, Mass., consulting firm. The swaps allowed hospitals to act much like homeowners switching from a floating-rate mortgage to fixed-rate one, betting on rising interest rates. For a fee, the hospitals received a fixed rate to sell bonds, lower than the municipal-bond market at the time. These bets backfired when the Federal Reserve cut interest rates to nearly zero from more than 5% in 2007. … The hospital deals were part of a larger stampede into swaps contracts by cities, schools and other taxing districts seeking to lower their payments on bonds they sold" (Dugan, 7/7).
 This article was reprinted from khn.org with permission from the Henry J. Kaiser Family Foundation. Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization unaffiliated with Kaiser Permanente.
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