CHICAGO, May 4, 2004 - Hospitals' increasing need to invest in plants, new technology and equipment has sparked a tremendous need for capital, yet some hospitals may find it beyond their grasp. More than 8 out of 10 hospital CFOs recently surveyed fear they will have greater difficulty funding capital expenditures over the next 10 years, with 63 percent reporting they will be more dependent on cash from operations to fund capital projects. While this strategy may be successful for hospitals in strong financial positions, cash from operations may not be a viable strategy for many hospitals struggling with low profitability, minimal liquidity, and a high debt burden.

These findings were based on a survey of CFOs at 460 hospitals and health systems nationwide and are contained in the fourth report of the Financing the Future series % a year-long project led by HFMA in partnership with GE Healthcare Financial Services. The project provides information, insights, strategies, and tools to help hospitals finance their future. The findings of Financing the Future are based on research conducted by HFMA and PricewaterhouseCoopers.

HFMA President and CEO, Richard L. Clarke, FHFMA, says, "With capital spending expected to rise 14 percent per year over the next five years, capital access will be the key differentiator as the chasm grows between hospitals with broad versus limited access to capital. CFOs will need to use creative forms of capital access accentuating the focus on operating margins, work to improve disclosure policies to broaden their chances of obtaining capital for projects and emphasize philanthropy as a source of funds."

"Hospitals will have to optimize their capital structures to fund their aggressive future capital spending goals, and tax-exempt bonds and cash aren't always the right answer," said Rick Wolfert, president and CEO of GE Healthcare Financial Services. "Alternative sources of capital can be cheaper and quicker to obtain, provide flexibility in structures and collateral, preserve financial ratios through off-balance sheet structures, and help insulate the facility from the impacts of changing technology."

Since 2000, credit downgrades have outnumbered upgrades by nearly five to one, resulting in hospitals paying higher rates to access capital, and requiring CFOs to become more savvy in understanding alternative sources of capital. This trend will continue as hospitals with lower credit ratings face potentially higher interest rates and overall interest payments

Alternative sources of capital will largely depend on whether hospitals fall in the "have" or "have not" category. For example, the "haves" are more likely to access tax-exempt bonds, whereas, the "have nots" will turn to alternative sources of capital such as equipment leases. These funding alternatives are key for the "have nots," as 24 percent of those surveyed have already reached their debt capacity and more than 50 percent of all rated hospitals were rated BBB or below.

Nearly 45 percent of all hospitals will increasingly look to philanthropy to fund their future capital needs. According to the survey, academic medical centers, children's hospitals and hospital systems are more reliant on philanthropy as a funding source. However, the availability of such funds can be affected by the health of the economy.

Additional findings reveal that more than one-third of government hospitals will rely more on local taxes as a means to meet capital need, despite states' being strapped for cash. Almost 25 percent of hospitals will turn more to bank loans as a capital access point.

Given the intense desire for capital and many hospitals' weakening financial circumstances, hospitals will need to take decisive steps to ensure they have access to needed capital in the future, including 1) Focusing on their operating margins; 2) Using credit enhancement; 3) Exploring alternative financing mechanisms; and 4) Increasing disclosure.

The next Financing the Future report will be issued in July 2004 and address the implications of future capital need for providers. It will include examples of how hospitals can position themselves for access to capital; how they can plan to identify and accommodate their capital needs; and what techniques they can use to access capital.

The purpose of Financing the Future is to give healthcare professionals the information, strategies and tools they need to seize the opportunities presented by increasing demand for services as well as innovations in technology and care delivery. Seizing these opportunities requires capital, yet rising costs and inadequate payment make accessing capital more challenging than ever. Financing the Future brings together key stakeholders in the industry to quantify capital need and access, identify best practices for capital planning, provide tools for determining capital need, recommend innovative techniques for capital access, and suggest areas for policy change. This report, How Are Hospitals Financing the Future: The Future of Capital Access, is based on a meta study, survey, data analysis, and interviews conducted by HFMA and PricewaterhouseCoopers LLP. The study provides a unique analysis of existing data that has not been examined in previous research. "To have access to capital in today's market, hospitals must demonstrate financial strength despite waves of reimbursement changes, regulatory shifts and rising uninsured," said Kelly Barnes, who heads the U.S. healthcare assurance practice for PricewaterhouseCoopers. "An overwhelming majority of CFOs surveyed said that Medicare and Medicaid aren't paying their share of capital costs. That means that hospitals must try to squeeze funding from other sources for their capital needs."

HFMA is the nation's leading membership organization for more than 32,000 healthcare financial management professionals employed by hospitals, integrated delivery systems, managed care organizations, ambulatory and long-term care facilities, physician practices, accounting and consulting firms, and insurance companies. Members' positions include chief executive officer, chief financial officer, controller, patient accounts manager, accountant, and consultant. HFMA offers educational and professional development opportunities, information on key issues, technical data and networking opportunities, with the ultimate goal being to create a more supportive environment in which members do their business. For more information, visit the Association's Web site at www.hfma.org.

Healthcare Financial Services, a unit of GE Commercial Finance, is a provider of capital, financial solutions, and related services for the global healthcare market. With over $13 billion of capital committed to the healthcare industry, GE Healthcare Financial Services offers a full range of capabilities from equipment financing and real estate financing to working capital lending, vendor programs, and practice acquisition financing. With its knowledge of all aspects of healthcare from hospitals and long-term care facilities to physicians' practices and life sciences, GE Healthcare Financial Services works with customers to create tailored financial solutions that help them improve their productivity and profitability. For more information, visit .

To order this report, or previous reports, contact HFMA at 800 -252-4362, and press option 2, or visit www.financingthefuture.org. Press inquiries should contact Terry Arya, at 800-252-4362, ext. 362 or via email at tarya@hfma.org or Deia Campanelli at 312-441-6169 or .