Assessing the Characteristics of Hospital Bond Defaults

OBJECTIVES: The authors identify market, operational, and financial characteristics associated with the default of hospital revenue bonds using logistic regression analysis. METHODS: Data from 22 defaulted hospitals and 260 nondefaulted hospitals from 1988 to 1992 are analyzed. RESULTS: Findings indicated that defaulted hospitals had smaller market shares, were located in near-urban markets, and incurred higher expenses per discharge than nondefaulted hospitals. Defaulted hospitals also were highly leveraged and had lower debt service coverage ratios compared with nondefaulted hospitals. CONCLUSIONS: Results suggest that market share, ability to generate sufficient case flow to meet debt service, and amount of debt on hand are critical factors in avoiding a bond default but not government payer mix.