The Canadian healthcare system is currently undergoing an unprecedented level of change. Readers of Hospital Quarterly are only too aware of this fact (see especially Jim Saunders, "The Potential, The Politics and The Propaganda" in vol. 1, no. 2 and Decter et al., "Reengineering and Integrating Healthcare Delivery: What Have We Learned in the 1990's?" in vol. 1, no. 1). After years of neglect, the nation's healthcare delivery system is being radically altered by governments seeking to simultaneously reduce budget deficits, slow the growth of healthcare spending, enhance the quality of care, and prepare the system to meet the needs of an aging population.
In Ontario, for example, recommendations made by the government-appointed Health Services Restructuring Commission will lead to the largest capital expenditure and renewal program in the history of the province's hospital system. The provincial government has also decided that it will only fund approximately 70% of the costs associated with this capital-expenditure program. The remaining funds must be raised by the individual hospitals themselves, either through foundation grants, ancillary revenues, fundraising campaigns or commercial borrowing. This is a significant change, with implications for the way a hospital's financial affairs are managed.
This article is meant to provide answers to many common questions currently being raised by hospital board members, CEOs, CFOs and financial staff who must adapt to this new funding environment. It will also describe several options available to assist CFOs as managers of a hospital's debt and capital structure. Finally, this article will discuss topics that are near and dear to a lender's heart, but which might not previously have been of any concern to hospital managers outside the typical requirements of the provincial health ministry (e.g. cash-flow analysis, business-plan design). The authors hope that the topics examined here will both stimulate discussion and show hospital managers that a lender can work together with them to achieve the hospital's goals in a challenging environment. (A glossary of highlighted terms is provided at the end of this article for those who are unfamiliar with commonly used banking terminology.)
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