The Investors Hit Hardest by Coronavirus? The Hospitals Fighting to Treat It

Volatile markets, canceled surgeries, and declining donations have hospital investment teams working overtime.

(Patrick T. Fallon/Bloomberg)

(Patrick T. Fallon/Bloomberg)

As hospitals fight an escalating number of coronavirus cases, the investment offices that sustain healthcare organizations are facing down a crisis of their own.

Health and hospital systems officials say they are facing financial pressures from all sides as their organizations combat a worsening pandemic. Many hospitals and healthcare organizations have had to cancel elective, profitable surgeries to shore up hospital beds and equipment for patients with severe cases of coronavirus. At the same time, their investment portfolios have taken a hit from asset prices plummeting. The market downturn is also likely to impact hospital donors, meaning fewer donations are likely to come in.

“It’s impacting us much more so than other nonprofits,” David Holmgren, chief investment officer at Connecticut-based Hartford HealthCare, said by phone on Monday.

According to Holmgren, hospitals and health systems are facing a challenge unlike college endowments and foundations. While those institutions have been able to keep tuition, even as they sent students home for the year, hospitals will not be able to recoup the money lost from canceling elective surgeries and other procedures.

“In the case of healthcare, our expenses are going up, at the same time that our revenues are going way down,” Holmgren said.

The outlook for some healthcare organizations is grim, according to Haley Stevens, a U.S. congresswomen representing Michigan’s 11th district. She tweeted Friday that she had spoken with a hospital executive who told her that they lost $39 million in a month. “Some in their group have 1-2 months before they will close doors,” she said.

Sue Slocum, who heads up the investment office at Children’s Hospitals and Clinics of Minnesota, said she is working long hours to manage the crisis.

She has been taping MSNBC’s Rachel Maddow Show to keep up on the news, and on Monday, she got up in the middle of the night to watch it after struggling to fall back to sleep.

“Minnesota was the lead story,” Slocum said by phone Tuesday. The state’s governor, Tim Walz, is in self-quarantine after coming into contact with an individual who tested positive for Covid-19; lieutenant governor Peggy Flanagan’s brother has died from the virus; and Minnesota senator Amy Klobuchar’s husband has been hospitalized with coronavirus.

“I will tell you it came home to Minnesota with that kind of headline,” Slocum said. “That’s the emotional part of it.”

Holmgren also reported grappling with the emotional toll that the crisis has had on his team, who have been working long hours over the last few weeks. “We are so incredibly worn down,” Holmgren said, adding that he’s been focused on finding ways to keep his team engaged and upbeat during this time.

“It’s just so depressing,” Holmgren said. “It’s a double whammy of being at the hospital and everyone is experiencing anxiety and the dedication and the hard work. And then we’re in the investment office, which is depressing.”

Beyond the emotional toll, hospitals and health systems are contending with how, exactly, to manage their investments during this tumultuous period.

Both Slocum and Holmgren reported that they have been in close touch with both their money managers and their boards of trustees.

“We’re communicating with all our managers and letting them know our financial picture is to be determined,” Holmgren said. “We may have to reach out in the future about pulling back some assets.” He added that he has been letting general partners know that Hartford HealthCare may have a shorter investment time horizon than they previously thought.

According to Holmgren, the most important thing is communicating with money managers early, and often.

“If you really want to be a good investing partner, you don’t want to surprise your GP,” Holmgren said. “If I’m shocked by what the manager has done, I get upset. I just don’t ever want to be in the position of shocking the GP because that’s unprofessional.” He added that general partners have been “incredibly sympathetic” to the situation.

According to Holmgren, Hartford hasn’t had to rebalance its portfolio yet, but the investment staff is having regular conversations about liquidity and liquidity needs.

Slocum, meanwhile, said she’s taking some comfort in having set up a well-diversified portfolio prior to the market’s drop.

“It’s nice when you’re in a crisis and realize that you did execute on what you thought you executed,” Slocum said.

[II Deep Dive: Health-Care Systems Want More Alternative Assets. But Can They Get Them?]

Some hospital and health systems are looking at creative ways to manage the crisis. For example, one hospital system’s investment chief told II that they are looking at purchasing their hospital’s own debt as an investment, because the variable interest rates, which are reset daily, have been swinging widely.

“For overnight money, that’s extraordinary,” the source said.

According to Mark Kramer, founder and managing director at consulting firm FSG, foundations, including those at hospital and health systems, should focus on keeping payouts high to support their organizations.

Foundations are subject to a federal law that requires they pay out at least 5 percent of their assets per year. As asset values decline, so too do the values of required payouts. But, according to Kramer, now is not the time to be pulling back on giving.

“The 5 percent payout is a floor,” Kramer said by phone Tuesday. “It’s not a ceiling, although many foundations treat it that way. Many foundations have had a few good years in the stock market, and they certainly could afford to increase their payouts.”

One way foundations could do it? Use their balance sheet as collateral for loans from banks that may not otherwise lend money to them.

“The repayment record is excellent because the nonprofits want to keep their donors happy and act responsibly,” Kramer said. He added that this wouldn’t cost much to do, beyond minor transaction costs.

“It enables them to have access to money now when they need it,” Kramer said. He added that when things recover, the nonprofits will be able to pay back the loans, and their assets will be free and clear.

“We know that at some point, the market will recover,” Kramer added. “We don’t know when, but it will.”