Buffett Divests of Muni Bonds. What is Hospital Link?

By Michael Arrigo

Warren Buffett divested of his firm’s stake in municipal bonds.  When he invested originally, he made a bet that 14 states who were issuers would not be a default risk.  We have discussed the reimbursement risk in hospital revenue bonds. Hospital revenue bonds (also known as “Medical” Revenue Bonds) have a risk based return tied to the hospital’s ability to earn and receive revenue.  Unlike typical municipal bonds, hospitals have no authority to tax, so their value as a revenue bond is tied strictly to their ability to earn and receive revenue.  In the 250 page prospectus we read for a recent hospital revenue bond issue,  there was no mention of reimbursement risk associated with the upcoming ICD-10 standard, or other health care regulations….(continued below video below…)

Best practice recommendations:

  1. investigate services that can accelerate receivables on hospital insurance claims
  2. retain competent ICD-10 consultants who are capable of assessing historical claims, ICD-10 impacts, clinical documentation of medical necessity
  3. ( Use analytics to provide dashboards that help the CFO visualize reimbursement risks and opportunities to prioritize the ICD-10 transition activities and investments
  4. communicate with lenders regarding credit lines and the risk mitigation steps your firm is taking well ahead of time.

We discussed our findings with a leading bond trading firm 30 days ago.  What WSJ missed in their video recap: 15% of many muni-portfolios are NOT municipality related bonds. They are hospital revenue bonds. Buffet is the leader; average investors will now scrutinize this point and perhaps review what this means in hospital bonds and what reimbursement risks such as ICD-10 may be  driving risk in the future.  Reimbursement risk and risk mitigation will impact hospital system’s future Weighted Average Cost of Capital (WACC).   Those health care providers that perform ICD-10 assessments should have a lower WACC in the future.

Michael F. Arrigo

Michael is Managing Partner & CEO of No World Borders, a leading healthcare management and IT consulting firm. He serves as an expert witness in Federal and State Court and was recently ruled as an expert by a 9th Circuit Federal Judge. He serves as a patent expert witness on intellectual property disputes, both as a Technical Expert and a Damages expert. His vision for the firm is to continue acquisition of skills and technology that support the intersection of clinical data and administrative health data where the eligibility for medically necessary care is determined. He leads a team that provides litigation consulting as well as advisory regarding medical coding, medical billing, medical bill review and HIPAA Privacy and Security best practices for healthcare clients, Meaningful Use of Electronic Health Records. He advises legal teams as an expert witness in HIPAA Privacy and Security, medical coding and billing and usual and customary cost of care, the Affordable Care Act and benefits enrollment, white collar crime, False Claims Act, Anti-Kickback, Stark Law, physician compensation, Insurance bad faith, payor-provider disputes, ERISA plan-third-party administrator disputes, third-party liability, and the Medicare Secondary Payer Act (MSPA) MMSEA Section 111 reporting. He uses these skills in disputes regarding the valuation of pharmaceuticals and drug costs and in the review and audit of pain management and opioid prescribers under state Standards and the Controlled Substances Act. He consults to venture capital and private equity firms on mHealth, Cloud Computing in Healthcare, and Software as a Service. He advises ERISA self-insured employers on cost of care and regulations. Arrigo was recently retained by the U.S. Department of Justice (DOJ) regarding a significant false claims act investigation. He has provided opinions on over $1 billion in health care claims and due diligence on over $8 billion in healthcare mergers and acquisitions. Education: UC Irvine - Economics and Computer Science, University of Southern California - Business, studies at Stanford Medical School - Biomedical Informatics, studies at Harvard Medical School - Bioethics. Trained in over 10 medical specialties in medical billing and coding. Trained by U.S. Patent and Trademark Office (USPTO) and PTAB Judges on patent statutes, rules and case law (as a non-attorney to better advise clients on Technical and Damages aspects of patent construction and claims). Mr. Arrigo has been interviewed quoted in the Wall Street Journal, New York Times, and National Public Radio, Fortune, KNX 1070 Radio, Kaiser Health News, NBC Television News, The Capitol Forum and other media outlets. See https://www.noworldborders.com/news/ and https://www.noworldborders.com/clients/ for more about the company.

Leave a Reply