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Hospital Legal Cases And Wall Street – Paying Penalties to Get Out of Derivative Markets Pushing Finances Over the Edge an

Posted Jul 07 2010 4:39pm

One hospital mentioned here, Tri-City in Oceanside has been one I have been following.  You can read more about their lawsuit at the link below.  As this article states hospitals knew of the risks going into some of the investments but like the rest of us, never thought about the bottom falling out the way it did.  Some of the image problems started back in 2007, before the crash of 2008 on Wall Street and that of course made it worse.

The big problem is the high interest rates they have been left with and when a facility is already operating in the red it only makes the survival process worse.  In the past hospitals made money on their investments which helped make ends meet when shortcomings from compensation entered the picture from health insurers contracts. 

You can be “right” as a banker and state that the penalties are due in full but look who you are putting out of business potentially and I think some of the penalties should be negotiable, after all even the folks that work on Wall Street are going to need healthcare and hospitals at some time, but maybe they don’t think of it that way.  With current hospital financials the way they are and appearing to get worse, it seems a little discounting on fees and working with the hospitals would be an act of good faith right now with Wall Street, of course each case would be looked at individually.  A hospital in Florida, Sarasota Memorial, was going to build a new addition but now it probably will never get off the ground due to financials and non profitability. 

I sit here and write about telling consumers to ask for discounts from the hospitals when they can’t afford it, so shouldn’t this roll downhill, or maybe in this case uphill?  Hospitals can give out discounts to help consumers yet the banks don’t want to seem to bend at all and could care less on whether or  not a community has a hospital to serve them.  Let’s also not forget that EHR system they either need to buy or upgrade as well.  BD    image

Hospitals nationwide are tangling with Wall Street to get out of disastrous wagers that have complicated their financial problems.

Some hospitals are paying millions of dollars in penalties to get out of derivatives contracts, after betting incorrectly that interest rates would rise. Other hospitals are paying higher interest rates. At many, these ill-fated financial bets have contributed to layoffs and scuttled projects.

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.

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