Not all Money is Green: Don’t Confuse Hospital Loans With Stipends

What does China’s foreign policy have to do with hospital financial support? More than you’d think.

I recently read a news article about China’s efforts to expand its economic and political power into the regions west of its country, in particular into Afghanistan, Pakistan, and India.

As opposed to the model favored by the U.S., in which outright grants of cash, that is, foreign aid, is extended, China is loaning those countries billions of dollars to build infrastructure, but with a twist: the infrastructure is built out using Chinese companies, Chinese materials, and, in many cases, Chinese labor.

Instead of the result that China hoped to achieve, pulling Afghanistan, Pakistan, and India more into their political sway, it turns out that those infrastructure projects are putting those countries into significant debt and causing significant ire. Projects, such as light rail, are running way over budget and will never pay for themselves: The ticket prices that would have to be charged just to break even are way outside the budget of the local population, so usage will have to be subsidized, causing a loss on top of the fact that the countries will have to pay China back.

With many hospitals becoming averse to coverage stipends, some are proposing loans to help contracted groups meet expenses.

But, as Pakistan can tell you, the problem with a loan is that it has to be paid back. From what, is the question.

Take the case of a radiology group at a hospital at which the payor mix isn’t sufficient for you to make a go of it. Simply borrowing the money to meet payroll is solving your short-term problem of retention and recruiting, but exacerbating the long-term one, which is that you’re going to have to pay the hospital back with money that you don’t, and never will, have.

And, it’s highly unlikely that the hospital is just going to forgive the debt.

Don’t get yourself caught up in a mess like Pakistan. If you can’t profitably service a facility or some other practice site, and the problem is systemic and not merely poor temporary cash flow, you can never borrow your way out, not from a bank and not from a hospital.

Loans are not grants like foreign aid. Loans are not coverage stipends. Loans are just debt. Is that what you need?

Comment or contact me if you’d like to discuss this post.

Mark F. Weiss

www.advisorylawgroup.com

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