NEW YORK CITY — The shoe was on the other foot on the last day of the Non-Profit Health Care Investor Conference, as the talk moved from top-performing hospitals and their strategies for dealing with health system transformation to what the credit rating agencies and investors from both the bond and equity markets are looking for in health care investments.

Outgoing HFMA President and CEO Richard Clarke moderated the discussion, which was really a chance for folks from the buy-side to explain what they are looking for before deciding to make an investment. The ultimate question they are asking, said Lyle Fitterer, managing director, head of tax-exempt fixed income at Wells Capital Management, is "do I want to commit more money to this sector?"

Each of the panelists ticked off a few things that they're looking for from hospitals seeking capital:


  • "The biggest one is access to management. What kind of access do we have and what kind of information are they willing to share?"
  • What are they doing to adapt to the changing landscape?
  • What level of investment are they making in IT and do they have a "professional" management team in place.
  • "Mirror what the for-profits do in terms of disclosure."

Gary Taylor, managing director, Citi Health Care Equity Research:

  • Equity investors have a slightly shorter view of things than the bond market, he said. They are focused these days on market share and market growth.
  • They want to see a strong balance sheet.
  • When looking at earning, there is less of an emphasis on the inpatient side of the ledger and more on outpatient/ambulatory services.

Lisa Goldstein, associate managing director, Moody's Investor Service:

  • Financial ratios will continue to be critical, but ratings agencies will be evolving some of their other metrics. For instance, instead of considering the number of physicians on staff, looking instead "the number of aligned physicians."
  • How is the management team preparing the organization for the shift from volume to value?
  • Is there a strategic plan for IT investments?

I also caught up with S&P's Liz Sweeney, who further explained how rating agencies are viewing this time of transition:

Finally, while much of the chatter during the two-day meeting was how hospital execs are focused on reforming the health care system, not necessarily the Supremes or the election, the investment community is anxious about this summer's court ruling.

"If the court strikes down the mandate, we do see some trouble," Taylor said, especially for systems with health plans and the impact of risk selection.

Fitterer said that they're also concerned with the financial challenges facing the states. "We look state-by-state to see what economic pressures there are."