The capital structure, a perfect blend of equity and debt, is an integral part of the financial plan of the healthcare industry. The charitable hospitals as a cluster have maintained a constant threshold of debt over decades. On the other hand, the profit-driven healthcare segment has struggled to reduce the debt level. The reduction of debt was due to chiefly unfavorable financial incentives, as there was an emphasis on high bond ratings. The non-profit hospitals still depend on debt due to the no availability of equity, and it is an essential resource for the infrastructure.
National Health Expenditure
The health care industry is in dire need of fresh funds to expand and maintain infrastructure, acquire technology and equipment or restructure their capital. M&A advisors work with the healthcare industry to assess their financial requirements and formulate an apt strategy that aligns with willing lenders. The health care industry is facing numerous financial issues and is mainly dependent on the private sector. Many new ventures are funded by professional investors. The government spending on healthcare is measured through National Health Expenditure. A major part of it goes to personal healthcare, such as doctor fees and purchase of drugs and a minor portion is channeled to research and public health programs.
Borrowed millions of funds
Government health care spending has aggressively surpassed economic growth. In 19707.2% of US GDP was spent on healthcare, and by 2010 it was 17.9%. As a large part of GDP is spent on healthcare, less resource is available for other sectors like education. When healthcare cost escalates, the government allocates fewer resources for education. The government either raises tax or cut spending on healthcare. The private healthcare industry needs more debts to pay dividends to stakeholders; this is more applicable after the pandemic crisis. As per the document published by the Private Equity Stakeholder Project at least five US healthcare firms borrowed millions of funds for payouts.
Investors are seeking higher yields as the interest rate is plunging to new lows. The process is known as a dividend recapitalization. The healthcare industry is slowly rebounding; governments are providing various stimulus packages new venture capital is flowing in. The borrowed amount of the healthcare industry in Fy2021 amounts to $3.7 billion, doubles that of the previous year, cited by the S&P Global Market Intelligence. As per their assumption, this year would be the most proactive in borrowing since 2015.
Health political and social commitment
The legislation, government policy and insurance-driven initiatives formulate the US healthcare finance structure. Investment in healthcare is not only crucial for the public health system but also for inclusive economic growth because poor health implies low productivity, job prospects and human development. There is a strong need to treat health as a political and social commitment; many countries such as Costa Rica, Brazil and Thailand have come up with social health insurance policies. Easy access to finance is crucial for the healthcare industry to meet the changing needs of society, acquire new technology and equipment, replace worn-out tools and streamline operations. The new resource is required to offer new services, to enhance productivity and service. Adequate steps are called for hospitals to develop into more comprehensive healthcare units.