Factors associated with lease financing in the hospital industry

In contrast to capital leases, which are reported on the balance sheet as debt, operating leases are a form of off-balance sheet financing only reported in the notes to the financial statement and have limited disclosure requirements. Following the perpetuity method of corporate finance, this study developed a capitalized operating lease value for hospitals. Evaluating the substitutability between lease and debt financing, the findings show a marginal displacement of debt by lease financing. Assessing the relationship of market, mission, operating, and financial factors on lease financing for all short-term, acute-care hospitals across the United States, the results indicate that investor-owned hospital management companies and hospitals located in CON markets are less likely to lease and that smaller hospitals with fewer unoccupied beds, higher proportion of government payers, low liquidity, and lower capital expenditures are more likely to lease.