UNIVERSITY PARK, Pa. -- On May 3, Penn State Trustees approved a resolution to allow Penn State Health, the University’s health care enterprise, to establish separate credit and borrowing capacity independent of the University. The measure enables Penn State Health to more quickly secure funding for capital projects that are essential to its continued growth and success in a highly competitive health care environment and do so with greater autonomy.
The action provides Penn State Health with direct access to capital markets. Historically, the health care enterprise has had to borrow funds through the University to support vital capital projects, such as the original 2013 construction and current expansion of Penn State Children’s Hospital, as well as new construction and renovation of outpatient clinics and hospital facilities. Under the action approved today by trustees, Penn State Health can begin to work with outside credit rating agencies to establish its own credit rating separate from Penn State and make borrowing decisions on its own.
“This strategic decision by the trustees helps to meet the financial needs of Penn State Health’s growing multi-hospital and physician practice system. It allows us to be much more nimble in a dynamic and ever-evolving health care environment,” said Steve Massini, current executive vice president and chief administrative officer of Penn State Health who will assume the role of Penn State Health CEO this summer. “It also means projects that are essential to the University’s core academic and research missions no longer will be required to compete with Penn State Health projects for access to capital.”
Under the terms of the measure, Penn State Health remains a controlled subsidiary organization of the University and Penn State Health’s financial results will continue to consolidate into Penn State’s audited financial statements.
“Penn State is committed to the continued growth and development of a robust health care enterprise, but it’s important that we strike the appropriate balance between Penn State Health’s success and the University’s fundamental obligations to its core educational and research missions,” said David Gray, Penn State’s senior vice president for Finance and Business, and treasurer. “Today’s decision by our trustees puts these commitments in proper perspective. It preserves the University’s focus on its primary purpose as a student-centered University, while giving Penn State Health the increased flexibility necessary to make strategic investments in patient care services and facilities.
The resolution still places some limits on the total amount of debt Penn State Health can incur without seeking Trustee approval. The limits are based on the health system’s debt to capitalization ratio — the proportion of debt used to finance its operations as compared with its capital. The health system’s financial obligations to support the health sciences research and education missions of Penn State College of Medicine through an academic support payment formula also remain protected.