IT Financing Options

IN SOME CASES IS THAT WE'VE STRUCTURED OUR FINANCING SO THAT THE PAYMENT SCHEDULE COINCIDES WITH THE FEDERAL GOVERNMENT'S REIMBURSEMENT PLANS. WE'VE STRUCTURED THAT PROJECT SO THAT FOR THE FIRST COUPLE OF YEARS, THEY WON'T PAY US BACK ANYTHING, UNTIL THEY'VE DEMONSTRATED MEANINGFUL USE.

HCI: So you're seeing a lot of hospitals use that type of financing for basic EMR implementations?

Waring: Yes. We have financed a couple ourselves. And we're seeing a lot of interest in IT, because these IT projects have a lot of software and implementation costs involved in them, and it's hard to lease an IT project, given all the soft costs. So you're really looking at bond financing or loan financing, and this really is the ideal option.

HCI: Are you seeing primarily smaller and mid-sized community hospitals doing this?

Waring: Well, we've got one multi-hospital system in the Midwest that did a $10 million project with us. I'm not sure exactly the scope of that particular project.

HCI: Are you seeing a burst of demand because of HITECH and the meaningful use requirements?

Waring: I believe that that is spurring a lot of this. In the conversations I've had with a lot of CFOs, they've run the numbers; and they know what the reimbursement schedule will be under HITECH for four or five years. So they can figure out what the reimbursement result will be. What we've done in some cases is that we've structured our financing so that the payment schedule coincides with the federal government's reimbursement plans. We've structured that project so that for the first couple of years, they won't pay us back anything, until they've demonstrated meaningful use. Now, the cash flows they're laying out won't cover the full cost, but will cover a pretty substantial portion of it.

HCI: Do you see some hospitals working through the logic on incentives and penalties under HITECH?

Waring: I don't really talk to CIOs, but I talk to CFOs regularly, and they understand this, that if they don't get moving on this now, there will be a stick in the future. And they are aware of the incentives in the future, and are becoming aware of the more liberalized financing rules. So I'm seeing a real surge in activity since the beginning of last year, a lot more IT projects than before.

HCI: What do you see as the biggest trends in the next few years?

Waring: I'll start at a higher level, and this comes out of a survey that we did a few months ago. CFOs' biggest concern down the road is reimbursement cuts. One of the ways they'll fund healthcare reform is through cuts in Medicare reimbursement; plus, a lot of states will make cuts in Medicaid reimbursement. So the health systems I've talked to have said they know they've got to be more efficient and cost-effective so that they can even make money off Medicare patients. So they're really focusing on efficiency and making that break-even point.

THE HEALTH SYSTEMS I'VE TALKED TO HAVE SAID THEY KNOW THEY'VE GOT TO BE MORE EFFICIENT AND COST-EFFECTIVE SO THAT THEY CAN EVEN MAKE MONEY OFF MEDICARE PATIENTS. SO THEY'RE REALLY FOCUSING ON EFFICIENCY AND MAKING THAT BREAK-EVEN POINT.

The other element is that access to capital is there now, but there is a big difference between the access to capital and the financing options available to a strong organization versus a weaker one; the gap between the haves and have-nots is bigger than ever. And I don't really see that going back to the capital market world of 2006 or 2007, I really don't. Everyone seems to think that, although the capital market has been improving gradually and will continue to do so, there will always be a gap now. If you look back about three years ago, there was virtually no difference in credit spread [difference in interest rates] between an AA hospital and a BBB hospital; there was very little difference in the interest rates they were paying. Today, both the public market and the bank-qualified market are differentiating much more.

Healthcare Informatics 2010 December;27(12):38-44