Financial Options For Healthcare Companies

If you are starting a health care company, there are many financial options available to you. Equity financing, Tax-exempt debt, Common stock certificates, and Medicare Return-on-equity payments are just a few of them. Learn more about these options and how they work to support your company. You can even use these options to get a little extra capital to grow your business. After all, everyone needs money, and a healthcare business is no exception.

Equity financing

Various healthcare organizations have utilized equity financing to grow their business. This type of financing enables healthcare organizations to retain majority ownership, obtaining the capital required for expansion and continued growth. However, not all healthcare companies are ready for a strategic buyout or full recapitalization. To help organizations choose the best financing option, Provident works closely with each client to assess its specific financing needs and establishes relationships with healthcare-focused lenders.

As the healthcare industry continues to evolve, funding solutions are likewise evolving. Healthcare funding solutions range from antiquated fixed asset replacement to late-stage growth capital. A healthcare funding expert can guide a healthcare organization through the process, helping it decide which tools to pursue. To help healthcare organizations evaluate the best financing option, here are some tips for successful equity financing. When choosing an equity financing option for a healthcare organization, make sure to consider the entity’s history, financials and growth opportunities.

Tax-exempt debt

NFP health systems are more limited in their capital formation options than for-profit health systems. These systems must fund their capital needs with organizational cash flow, debt, asset sales, cash reserves, and philanthropy. They cannot participate in equity-based funding alternatives. But they can access tax-exempt debt to meet their operating needs. NFP health systems can benefit from these benefits if they decide to convert to a for-profit status.

One example of such a tax-exempt debt option is the use of a Hospital Authority’s bonds. A Hospital Authority that anticipates issuing not more than $10 million in governmental obligations may designate these bonds as tax-exempt. The issuers of such bonds must maintain a registry for tax-exempt obligations, and all subsequent assignments must be registered. Tax-exempt debt options for healthcare companies are available to support the growth and development of hospitals.

Common-stock certificates

Using common-stock certificates as a financial option for a healthcare company can have advantages and disadvantages. The primary disadvantage of using stock certificates is that investors are not guaranteed repayment of their investment at any point in time. If a company goes out of business, investors are only entitled to a pro rata share of the liquidated assets. However, the benefits far outweigh this disadvantage.

Access to capital is vital for health care institutions. Access to capital directly impacts an institution’s ability to grow and survive. Different institutions will have different access to capital. Using ownership certificates and other capital sources is one such option. However, for the most part, investors will purchase common stock only after a company has generated profits. By utilizing this type of funding, healthcare providers can reduce the overall costs of the business while increasing their access to capital.

Return-on-equity payments from Medicare

ROC is a measure of financial performance, using an investment perspective. It gives investors, new partners, and potential investors valuable insights into the health care industry. Traditionally, healthcare analysts have focused on profits, margins, and revenues, but ROC is a unique lens to analyze efficiency of capital. This study examined the ROC of seven major health care sectors. Of these, drug intermediaries and pharmacies had the highest ROCs in 2016. However, ROC declined for pharma companies and medtech companies.

Another factor that affects healthcare company returns is the line of business. For example, government programs have been profitable, generating relatively high returns. However, as employers have begun self-insuring, large group business has been transitioning to administrative services-only contracts. As a result, ROC has fallen, but has recovered to near pre-ACA levels. Companies have been able to reduce costs and boost profitability by acquiring smaller entities in the industry.

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