Stephen Joseph Brown Published in the Business Law & Governance
“There’s A Reason for Walls: A Defense of Compartmentalized Borrowing and Lending in the Healthcare World”

Stephen Joseph (Joe) Brown’s article, “There’s A Reason for Walls: A Defense of Compartmentalized Borrowing and Lending in the Healthcare World,” was published in the June 2009 issue of the Business Law & Governance, a publication of the American Health Lawyers Association. In his article, Joe discusses how, although collateral can offer the lender “extra protection,” allowing the lender to lend more money than it otherwise would, charge less interest, or both, “collateral is not a silver bullet against lender risk and comes with its own problems.” Joe notes, “Like all assets, the value of collateral can swing depending on market conditions.” Joe also explains how “each type of collateral has a different economic personality.” For example, he comments, “Real estate can swing widely in value from year to year, but usually keeps its value or gains value over the long run. Alternatively, equipment almost always depreciates at a fairly predictable rate over its lifetime.”

Joe’s article discusses how, recognizing these problems, healthcare borrowers and lenders have long separated their asset holdings in order to maximize the value of the collateral that they can pledge to lenders. Joe remarks, “By compartmentalizing assets and the operations that they empower, risks associated with such assets can also be kept separate…The aggregate borrowing power of a healthcare organization may be higher with separate financings than if a single lender were simply offered everything that a healthcare organization owns.”

Joe concludes, “Healthcare is… one of the largest and strongest horses pulling the American economic wagon and will very likely be a dominant factor in any future economic revival. It is therefore imperative that the healthcare industry have access to the private capital that it needs. This means that consistent with the present administration’s stated policies, government agencies need to take care in avoiding policies that unintentionally alienate private lenders.”