CHICAGO, November 13, 2007 - Capital improvements and other upgrades may suffer at hospitals across the country unless administrators find a way to cope with the medical malpractice insurance obligations and pension plans that are competing for these dollars. But planning to pay for unfunded obligations is just the tip of an operational iceberg known as unfunded liabilities that hospital CFOs need to successfully navigate.

To provide an understanding of the scope and effect of unfunded liabilities, such as defined benefit pensions and medical malpractice claims, HFMA and GE Healthcare Financial Services have released Managing Unfunded Liabilities: Will Your Hospital Be Prepared?, the third installment in the Financing the Future III series.

"Too many hospitals have been forced to reallocate precious cash to fund pensions and malpractice insurance programs," said Randy Waring, hospital leader for GE Healthcare Financial Services. "More healthcare organizations are looking to expand, renovate, and upgrade their facilities - so this trend couldn't have happened at a worse time. But there are creative solutions available to help hospitals remain competitive and financially sound."

Key issues and trends emerging from Managing Unfunded Liabilities: Will Your Hospital Be Prepared? include:

• Defined benefit plans have been declining in popularity over the past 20 years; McKinsey and Co. estimates that up to 75 percent of defined benefit plans (overall) will be frozen or terminated by 2012.

• The Pension Funding Equity Act of 2004 and the FASB Standard No. 158 have created a double whammy for pension plan sponsors requiring hospitals to put more cash into pension plans more quickly.

• The medical malpractice environment continues to be highly unpredictable. According to Jury Verdict Research, since the early 2000s, the overall medical malpractice climate has improved, yet while there have been fewer claims, the average size of claims is increasing by six percent and the amounts paid to plaintiffs increased three percent.

• There are solutions for hospitals struggling to minimize pension liabilities, including switching to combined contribution funds rather than a defined benefit plan. To help fund these obligations, they may pursue a revolving line of credit; a term loan; or tax-exempt financing for capital projects for which hospitals pay cash and then use the proceeds from that financing for pension plans.

The report also spotlights a hospital CFO who successfully addressed unfunded liability issues. Five years ago, Catherine Jacobson, FHFMA, CPA, senior vice president of strategic planning and finance, CFO, and treasurer for Chicago's Rush University Medical Center, inherited an under-funded defined benefit pension and a ballooning medical malpractice deductible.

"We had to face the funding of both of these trusts at the same time we were trying to build our cash balance," Jacobson said. "We were also dealing with years of deferred capital that we had to start to address and we had to do all of that despite all of the money that had to be funded into these two trusts."

Jacobson's dilemma and eventual turnaround is not uncommon. Since 2000, many hospitals have had to transfer large sums of cash from operations to support defined benefit pension plans and medial malpractice insurance programs. These cash demands are coming at a time when capital demands for expansion and renovation are at an all-time high.

For this report, HFMA and GE Healthcare Financial Services interviewed hospital financial executives, rating agencies and other financial and accounting authorities were interviewed to gain expert perspective and advice for hospital executives looking to balance fund obligations with portfolio risk.

Since 2003, HFMA's Financing the Future project has given healthcare providers the information they need to help their organizations have the resources necessary to provide safe, high-quality care for their communities. The project began with a series of reports highlighting strategies hospitals and other healthcare providers could use to improve access to capital.

With Financing the Future III, HFMA, in partnership with GE Healthcare Financial Services, sets out on perhaps its most ambitious effort to date: helping providers navigate key industry trends that affect hospitals' capital position and ability to fund important future initiatives. For each trend, a report will identify the current state and implications for the future. For more information about Financing the Future III and to access the complete archive of project reports, visit www.financingthefuture.org.

HFMA is the nation's leading membership organization for more than 34,000 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 affecting healthcare financial managers; resources, such as technical data, checklists, and research reports; and networking opportunities-all of which provide our members with the practical tools and ideas they need to ensure career and organizational successes. For more information, visit HFMA's web site at www.hfma.org.

GE Healthcare Financial Services is the premier provider of capital, financial solutions, and related services for the global healthcare market. With $17 billion in assets, GE Healthcare Financial Services offers a full range of financing capabilities from equipment leasing and real estate financing to working capital lending, vendor programs, and acquisition financing. With a dedicated focus and a deep knowledge of the healthcare industry, GE Healthcare Financial Services collaborates with customers to create tailored financial solutions that help them improve their productivity and profitability. For more information, visit www.gehealthcarefinance.com.

Press inquiries should be directed to:

HFMA
David Opon
708-492-3407
dopon@hfma.org

GE Healthcare Financial Services
Deia Campanelli
312-441-6169
deia.campanelli@ge.com

Helen Goodwin
GE Healthcare Financial Services
+44 207 302 6738
helen.goodwin@ge.com