Although long-term acute care hospitals have been around for some time, there are new challenges that make it difficult for LTACHs to obtain long-term financing, according to a recent report by Lancaster Pollard.
Here are six key points on LTACH financing, according to the report.
1. There are numerous debt financing options available for long-term acute care hospitals, with bond underwriting and private placements with banks at the forefront in the space.
2. If the right criteria can be met, financing via the U.S. Department of Housing and Urban Development/Federal Housing Administration and U.S. Department of Agriculture can also be attractive options for LTACHs.
3. LTACHs face some financing challenges. "Given the length-of-stay requirement for Medicare reimbursement, traditional banks are unlikely to lend to LTACHs due to fluctuations in cash flow caused by the higher turnover rates," according to Lancaster Pollard. When an LTACH patient stays less than 25 days, the facility will not be approved for Medicare reimbursement.
4. Some finance companies and cash flow lenders will consider financing LTACHs that have positive cash flow, and providing a pledge or receivables can help lenders and finance companies become more comfortable with project funding.
5. LTACHs have more difficulty obtaining long-term debt financing than do skilled nursing facilities or acute care hospitals. This is partially attributable to foreseeable growth among LTACHs' competitors, such as accountable care organizations.
6. As ACOs evolve, "LTACHs will be further challenged to cut costs and their ability to bring in new patients will be more challenging. This may ultimately make lending to LTACHs less desirable," according to Lancaster Pollard.
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