Interest rate swaps: financial tool of the '90s

The implementation of prospective payment for capital costs makes it more necessary than ever for healthcare financial managers to be able to creatively balance capital costs with risk. A new financial management tool--the interest rate swap (a contractual agreement in which one party with a fixed interest rate payment liability and another party with a variable interest payment liability agree to trade those obligations)--is proving to be a solution for a growing number of hospital managers. This article describes the uses of interest rate swaps and discusses the variables to be considered when evaluating whether the benefits of an interest rate swap offset the additional risk.