What's your game plan? Advice from the capital markets: do you want to know the most essential elements of your organization's strategy? Listen to what the rating agencies, bond insurers, and investors are saying

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Date: Nov. 2005
From: Healthcare Financial Management(Vol. 59, Issue 11)
Publisher: Healthcare Financial Management Association
Document Type: Cover story
Length: 3,369 words

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Strategy is critical to our current rating assessments because it encompasses all of the fundamental credit factors used in our analysis of not-for-profit healthcare entities--governance, medical staff, services and service area, competition, financial resources, and legal structure. These six factors have not changed over rime and remain the foundation for our credit analysis.

--A Rating Agency Analyst

The expected or hoped-for financial benefits of strategy are greatly discounted without a link to financial projections. If an organization is lacking financial projections, we will not provide bond insurance.

--A Bond Insurer

The strategic plans of many hospitals indicate wanting to be everything to everybody, but the question is, Are the strategic plans realistic from a financial point of view? In evaluating an organization's market and strategic position, we're looking for financial sustainability. --An Investor

Sound strategic planning is essential to effective organizational and financial performance.

All healthcare executives today are likely to agree with this statement, and also to recognize the need to link strategic planning with financial planning, Yet these views represent a significant leap forward from a rime when strategic planning in healthcare typically produced little more than a large document destined to gather dust on the shelf. Often pursued in a financial vacuum, healthcare strategic planning in years past tended to result in wish lists that could not be implemented or plans that were implemented without a sustainable financial foundation.

Today, healthcare financial leaders, board members, and other executives recognize the importance of using best practice, integrated strategic financial planning to effectively balance organizational strategies with financial capabilities. They know that this balance can significantly improve access to the capital needed to fund strategic initiatives. They still must answer a challenging fundamental question, however: What are the most essential elements of strategy upon which the integrated strategic financial planning process should focus?

A good way to answer this question is to ask the capital market players, namely the rating agencies, bond insurers, and investors in healthcare. In assessing comparative investment opportunities and organizational ability to repay debt, capital market players use extensive due diligence to evaluate hospitals' and health systems' strategies and financial performance. Understanding what they want to know about a healthcare organization, therefore, can provide an invaluable perspective.

To this end, we interviewed leading analysts in the agencies that rate healthcare credits, in the insurers that offer healthcare bond insurance, and in an institutional investor that purchases healthcare debt. These individuals pointed to six strategic concepts that make a critical difference to the decisions made by the capital markets.

Healthcare executives who understand and embrace these six "essentials" can be confident about well-focused strategic and financial planning efforts.

Essential 1. High-Level Strategic Thinking and Integrated Strategic and Financial Planning

The process an organization uses to devise its strategic plan and link it to its financial plan is critically important. "We look first for real evidence of strategic thought ... evidence that the organization's leaders are thinking globally about their business and about the forces that could...

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