CHICAGO, October 27, 2003 - Facing a headwind of rising demand by aging babyboomers, many hospitals may not have access to the capital they need to renovate and expand their facilities for the future.

Hospitals and health systems nationwide are having growing difficulty using traditional means to access capital to support the facilities and services needed to meet the burgeoning healthcare needs of their patients. In fact, according to a new report from the Healthcare Financial Management Association (HFMA) in partnership with GE Healthcare Financial Services, the number of hospitals defined as having broad capital access is dropping and the number of hospitals defined as having limited access to capital is dramatically rising.

Between 2001 and 2002, the percentage of hospitals defined as having broad access to capital declined from 42% to 36%. However, the percentage of limited-capital-access hospitals rose even more sharply, nearly doubling from 11% to 19%, indicating a widening gap between hospitals in strong and weak financial health. Operating margins for both hospital types also declined, but by a much more significant amount for limited-capital-access hospitals ,further separating the "haves" from the "have nots." This report, How Are Hospitals Financing the Future? Access to Capital in Health Care Today, is based on a meta study conducted by HFMA and PricewaterhouseCoopers LLP.

Factors such as bed size, ownership, teaching status and geography are some of the key differentiators for hospitals in strong or weak financial health. The report shows that a number of U.S. states are home to a high percentage of limited access hospitals. Ironically, the states with a high concentration of limited-capital-access are also those that depend on healthcare as an industry to support the state economy, such as New York, Hawaii and the District of Columbia. This trend has raised several red flags, as the growth of the healthcare industry may be slowed in these regions, significantly affecting the local economies.

HFMA President and CEO, Richard L. Clarke, FHFMA, said, "These research findings demonstrate that a combination of inadequate payments and rising costs make it difficult for hospitals to display the kind of balance sheets traditionally associated with easy capital access - a real challenge today given the intense need for capital to support increasing demand and new technology".

Operational characteristics also vary between financially strong and weak hospitals, with utilization playing a key role in determining an institution's financial success. Between 1997 and 2001, broad-capital-access hospitals reported a 23% higher average daily census (ADC) than limited-capital-access hospitals, which suffered a 12% decline. Operating margins for both hospital groups also declined, but by a much more significant amount in the limited-capital-access sector.

Findings suggest that hospitals maintain a wide range of funding sources - both external and internal; however, those sources are changing. The total amount of capital accessed from traditional sources - tax-exempt and taxable bonds, equity, bank loans, philanthropy and equipment leases - dropped 29% between 2001 and 2002, from $51.4 billion to $36.5 billion. The mix of traditional funding sources has also shifted dramatically, with the proportion of bank loans falling from 36% to 7% between 1997 and 2001 and the proportion of leasing increasing from 7% to 16%.

The most common form of external capital for hospitals, tax-exempt bonds, grew as a proportion of traditional capital sources from 39% to 54% between 1997 and 2001, although the dollar value of the bonds declined from $21.2 billion $19.8 billion. These changes are likely the result of a combination of external and internal factors, including Medicare payment rates and a range of rising costs. The squeeze on traditional sources has led many hospitals to seek alternative means of capital, making a facility's total volume of capital difficult to measure. For example,while the sale of medical office buildings was up 22% in 2002, this trend was partially fueled by hospitals selling assets to raise capital and gain control of their balance sheets.

Despite these trends, capital is available - even to hospitals with a shaky financial profile. Following a careful examination of key financial, demographic and performance characteristics associated with hospitals classified as having broad and limited access to capital, the report concludes that hospitals with poor financial profiles are more highly leveraged than hospitals with excellent financial profiles, thus indicating that these hospitals have been acquiring capital either from alternate sources or prior to the period examined.

"These findings provide real insights related to the changing financial dynamics within the healthcare industry," said Rick Wolfert, president and CEO of GE Healthcare Financial Services. "Increasing demand for services and corresponding capital investment, combined with the increasing pressure on margins, make it imperative that hospitals choose the right partners to help them navigate the growing sea of financial options and create a systematic approach to capital planning."

This report, How Are Hospitals Financing the Future? Access to Capital in Health Care Today, is the first in a six-part series from a project titled Financing the Future. The first report focuses on the current state of capital access: what are the sources, how are they changing, and what are the characteristics of hospitals with broad and limited capital access? The report also offers tools to help healthcare professionals know how to better access capital from various sources.

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. Over the coming year, Financing the Future will bring 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? Access to Capital in Health Care Today, is based on a meta study. The research was conducted by HFMA and PricewaterhouseCoopers LLP. "Our research took a unique approach towards this complex issue by examining the financial predictors of access to capital," said Gerard Bielak, a partner who leads the healthcare finance practice for PricewaterhouseCoopers LLP. "This unleashed a wealth of information about what types of hospitals appear to have access and how executives can steer their organizations toward better access. This analysis also has proven to be a springboard for our additional research in coming months. Such research will provide the underpinnings of how this industry finances its future needs to expand, renovate and improve quality."

For more information, or to order this report or the report series, contact HFMA at (800) 252-4362, and press option 2, or visit www.financingthefuture.org. Press inquiries should contact HFMA public relations consultant, Terry Arya, at (800) 252-4362, ext. 362 or via email at tarya@hfma.org; or Deia Campanelli, GE Healthcare Financial Services communications manager, at 312-441-6169 or deia.campanelli@ge.com.

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..

GE Healthcare Financial Services, a unit of the General Electric Commercial Finance, is the premier provider of capital, financial solutions and related services for the global healthcare market. With $10 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 and vendor programs. 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. GE Healthcare Financial Services' Web site is .