Friday, October 19, 2012

Illinois Non-Profit Hospital Net Assets Grow 50% During Obama’s Presidential Term

From an extensive review, I found a huge number of seven Non-Profit Hospital Organizations headquartered in the State of Illinois with Net Assets of more than $1 bil each at the most recently reported balance sheet date. 

These Net Assets amounts were obtained from the Non-Profit Hospital Organization financial statements contained in either EMMA (Municipal Securities Rulemaking Board) or in Dac Bond, two excellent internet research sources.

These seven Illinois Non-Profit Hospital Organizations, led by Oak Brook-based Advocate HealthCare Network, increased their Total Net Assets to $14.3 bil, or by an increase of a very robust 50% since their fiscal year ends only three years earlier, thus roughly during the Presidential term of the Obama Administration.

Total Net Assets, or Total Assets less Total Liabilities, is the singular best Financial Strength measure of a Non-Profit Hospital Organization.  It is built up primarily from the cumulative Hospital Operating Profits and cumulative Investment Income Returns since the Hospital Organization was started.  Thus for many hospital organizations, the Net Assets amount results from decades and decades of Hospital Operating Profits and Investment Income Returns.

Thus, for this key Total Net Assets amount to grow by 50% during the relatively short term of the Obama Administration is very impressive.  The massive increase in the stock and bond markets during the Obama Administration played a key role here, since Non-Profit Hospitals typically have a substantial amount of investments in both stocks and bonds.  Just looking at the stock market alone, the S&P 500 Index has increased by 72% since President Obama has taken office.

And with the substantial enhancement in Net Assets, along with the related substantial enhancement in Financial Strength, the Non-Profit Hospital Organization is able to borrow at very cheap interest rates.

The executives of Non-Profit Hospitals Organizations, all employees of these Hospitals, all retirees of these Hospitals, the Board of Directors of these Hospitals, and the bondholders of these Hospitals have to all be very pleased with what has happened with the financial strength of their Hospitals during the Obama Administration.

And frankly, so should hospital patients, US businesses, and US taxpayers.  

Why?  Because if the Obama Administration, with assistance from the Fed, had not taken steps to rescue the US economy from its freefall after the horrible 2008 financial meltdown, the key Net Asset metric, or financial strength, of these Non-Profit Hospitals, would still now be in the very precarious state it was in back in late 2008 and early 2009.  Thus, the US health care cost curve would have sloped even more upwardly, and substantially so, with the resultant substantially higher hospital patient fees, even much higher health insurance premiums, and even much higher Medicare and Medicaid costs.

Below here are the Non-Profit Hospital Organizations headquartered in the State of Illinois, with Total Net Assets of more than $1 bil each at the most recent balance sheet date, along with its Net Asset amounts at the most recently reported Balance Sheet date and at the Fiscal Year Ended (FYE) closest to Three Years Earlier, thus roughly during the Presidential term of the Obama Administration.

Most Three Three Obama Obama

Recent Years Years Bump Bump

Most Balance Earlier Earlier Net Net

Recent Sheet FYE FYE Assets Assets

Balance Net Balance Net Increase Increase
Hospital HQs HQs Sheet Assets Sheet Assets Amount %
Organization City State Date mil $s Date mil $s mil $s

Advocate HealthCare Network Oak Brook IL Jun 12 3,849 Dec 08 1,842 2,007 109%
Northwestern Memorial Health Care Chicago IL May 12 2,613 Aug 09 1,642 971 59%
Hospital Sisters Health System Springfield IL Mar 12 2,129 Jun 09 1,697 432 25%
NorthShore University Health Systems Evanston IL Jun 12 1,736 Sep 09 1,443 293 20%
Rush University Medical Center Chicago IL Jun 12 1,510 Jun 09 1,073 437 41%
Children's Memorial Medical Center Chicago IL May 12 1,318 Aug 09 1,051 267 25%
University of Chicago Medical Center Chicago IL Mar 12 1,154 Jun 09 823 331 40%

Total 7 Illinois Hospital Organizations

9,571 4,738 50%

Let me explain in more detail the Obama Administration’s major contribution to the substantial growth in the Net Assets of Non-Profit Hospital Organizations.

Many Non-Profit Hospital Organizations, both Catholic and Non-Catholic ones, hold an extensive treasure chest of investments in common stocks and bonds, which in many cases, substantially exceed in amount their total investments in property and equipment by these same hospitals. 

These investments in common stock and bonds were just thoroughly and completely devastated in 2008 by the financial meltdown of the US economy.

And it wasn't just the massive amounts of investments in common stocks and bonds which were on the books of these US Non-Profit Hospital Organizations.  In addition, there were massive amounts of investments in common stocks and bonds that are off books, in footnotes.  These would be these investments in pension trusts, which many Non-Profit Hospital Organizations have.

The stock market was crushed during and after the 2008 financial meltdown, with the resultant substantial markdown of the huge amounts of stocks held as investments by these Non-Profit Hospital Organizations.

And when you review the type of investments in bonds and other debt instruments held by many of these Non-Profit Organizations, you can see that there were many that were investments in US Government Agencies like Fannie Mae and Freddie Mac.  Also, there were many investments in residential mortgages backed by Fannie Mae and Freddie Mac.

When you go back to the financial meltdown in 2008, not only did the stock market end up crashing, but also so many financial institutions were about to go belly up.

And because of their massive losses, mostly driven by both huge Credit Losses and huge Derivative Losses, both Fannie Mae and Freddie Mac were bankrupt, with losses so large and expected to continue for many years.

Thus so many Non-Profit Hospitals, both Catholic and Non-Catholic, were in serious financial jeopardy after the 2008 financial meltdown.  Not only did their investments in common stocks crash, but they had massive investments in debt instruments linked to Fannie Mae and Freddie Mac, two flat out bankrupt entities.

And they also had investments in US corporate debt, where the corporations had huge amounts of investments in debt instruments linked to Fannie Mae and Freddie Mac.

And much of these hospital investments in US corporate debt were with corporations whose earnings had collapsed with the deep recession.

Further, many of these Non-Profit Hospitals took huge losses on their many financial swaps.  

When a typical person thinks of Non-Profit Hospitals, they expect to see a massive amount of Property and Equipment on the balance sheet.  Thus, this person wouldn't expect to see Non-Profit Hospitals substantially impacted much by the financial meltdown of 2008.

However, so many of these Non-Profit Hospitals held soft investments in equity and debt instruments, which far exceeded their investments in Hard Hospital Property Assets.  And when you also factor in all of the equity and debt instruments held by the pension trusts of Non-Profit Hospitals, this excess of Soft Investments in Equity and Debt Instruments over Hard Investments in Property and Equipment balloons up even further.

Also, with the deep, lengthy recession, hospital bad debts from patient accounts receivable were continually going through the roof.  And so were hospital charity care costs, which were also continually and dramatically increasing due to the deep, lengthy recession. 

Suffice it to say that many Non-Profit Hospital Organizations were in serious financial jeopardy in late 2008 and early 2009, before the Obama Team, aided by the Fed, went into action.

The end result was a stock market that subsequently nearly doubled over the next three years, a rescue of the auto industry, and a massive turn around of so many financial institutions which were clearly headed for the junk pile, including AIG, Merrill Lynch, Wachovia, Bank of America, Citigroup, and so many banks.

These financial institutions were all cleaned up by the Obama Administration, with able assistance from the Fed, with an overall result of not costing US taxpayers a dime, other than the cost of rescuing Fannie Mae and Freddie Mac, which both were overseen by an independent government entity, and thus the Obama Administration had no control over.

And after many years of massive losses, even both Fannie Mae and Freddie Mac registered substantial amounts of positive Pretax Income in the most recent first half of 2012.  Let's hope it continues.

And hospital investments in debt securities of corporations were subsequently enhanced in value by the dramatically higher earnings of these corporations, making their debt securities much more secure.

Thus, in near miraculous fashion, this severely-damaged financial strength of these Non-Profit Hospitals has been resurrected in the most recent three years, due mainly to many wise, decisive actions by the Obama Administration, coupled with assistance by actions by the Fed, which created a US economic infrastructure which permitted US businesses, of all sizes and in all industries, to flourish.  Thus the investments of these Non-Profit Hospitals in stocks and debt instruments of US businesses have also been substantially enhanced.

Total Net Assets, or the Excess of Total Assets over Total Liabilities, is the singularly salient measure of the financial strength of a Non-Profit Hospital.

When the Total Net Assets of a Non-Profit Hospital increases significantly, with this enhanced financial strength, the Hospital can now borrow at more favorable interest rates.  And they can refinance a good chunk of their existing higher interest rate hospital borrowings at the current, lower prevailing interest rates.  And the Fed has really helped on interest rates here.

And it clearly looks like the Non-Profit Hospital Organizations have taken steps to further enhance their Net Assets.

I think these hospital executives and Board of Directors have learned from the financial lumps they took from having investments in risky assets when the 2008 financial meltdown hit.

And I think the massive intellectual effort that accompanied the design of new Affordable Health Care Act resulted in many wise strategies developed by bright Hospital executives to enhance their Hospital Organization’s financial strength, or their Total Net Assets. 
The country has no chance of bending down the critical long-term health care cost curve unless Non-Profit Hospital Organizations are in a strong financial state.  When Non-Profit Hospitals have a sufficiently high level of Net Assets, it gives them the financial flexibility to prudently reduce the high patient fees they would otherwise charge. 
Keep your eye on the Net Asset amount of Non-Profit Hospital Organizations, and its trend, which right now is extremely favorable.  If this upward trend continues, this will provide the important clue as to how successful the new Affordable Health Care Act will be in the long run.