Bono, Bill and Melinda Gates congratulations Time Persons of the Year!

Bono, Bill and Melinda Gates Are Time's `Persons of the Year'

 

By Melvin J. Howard

Time Warner Inc.'s Time magazine named Microsoft Corp. Chairman Bill Gates and his wife, Melinda Gates, and rock star Bono as its `Persons of the Year' for 2005 for their commitment to charity and poverty relief.

The Bill & Melinda Gates Foundation, the world's biggest charity with a $29 billion endowment, gave away money more quickly this year than ever before in history, the magazine said in a statement. Bono, the lead singer of the band U2, helped persuade world leaders to forgive $40 billion in debt owed by poor countries.  I would like to congratulate Bono, Bill and Melinda Gates for stepping up to the plate. The commitment these individuals made to world health and poverty relief only goes to show you can do more then just sit and debate about the state of world poverty and health. You can do something about it.

Congratulations on a job well done continue success!

Derivatives A Term A Hospital CEO Should Know

DERIVATIVES FROM A HEALTH CARE POINT OF VIEW

 

By Melvin J. Howard

 

 

The concept of derivative is to create a contract that derives from an original contract or asset. For example, stock market derivatives are contracts that are settled based on movements in prices of stocks, without transferring the underlying stock. Similarly, a credit derivative is a contract that involves a contract between parties in relation to the returns from a credit asset, without transferring the asset as such. As you may notice this is a financial instrument that is used by financial institutions. It has now been expanded to a number of industries. As I mentioned in my previous postings health care is my main focus I think in order to properly serve as a hospital administrator or CEO. It is important that one has some information on the different methods of financing and mitigating risks of their health care facility.  

 

 What is a credit derivative? A credit asset is the extension of credit in some form: normally a loan, installment credit or financial lease contract.

      Every credit asset is a bundle of risks and returns: every credit asset is acquired to make certain returns on the asset, and the probability of not making the expected return is the risk inherent in a credit asset. There are several reasons due to which a credit asset may not end up giving the expected return to the holder: delinquency, default, losses, foreclosure, prepayment, interest rate movements, exchange rate movements, etc. A credit derivative contract intends to transfer the risk of the total return in a credit transaction falling below a stipulated rate, without transferring the underlying asset. For example, if bank A enters into a credit derivative with bank B relating to the former's portfolio, bank B bears the risk, of course for a fee, inherent in the portfolio held by bank A, while bank A continues to hold the portfolio. The motivation to enter into credit derivatives transactions are well appreciable. The above example has depicted credit derivatives being a bilateral transaction - as a sort of a bartering of risks. As a matter of fact, credit derivatives can be completely marketable contracts: the credit risk inherent in a portfolio can be securitised and sold in the capital market just like any other capital market security. So, any one who buys such a security is inherently buying a fragment of the risk inherent in the portfolio, and the buyers of such securities are buying a fraction of the risks and returns of a portfolio held by the originating bank. Thus, the concept of derivatives and securitisation have joined together to make risk a tradable commodity.

    

 A definition of credit derivatives: Credit derivatives can be defined as arrangements that allow one party (protection buyer or originator) to transfer credit risk of a reference asset, which it may or may not own, to one or more other parties (the protection sellers).Types of credit derivatives: The easiest and the most traditional form of a credit derivative is a guarantee. Financial guarantees have existed for thousands of years. However, the present day concept of credit derivatives has traveled much farther than a simple bank guarantee. The credit derivatives being currently used in the market can be broadly classified into the following:

     

Total return swap: As the name implies, a total return swap is a swap of the total return out of a credit asset against a contracted prefixed return. The total return out of a credit asset can be affected by various factors, some of which may be quite extraneous to the asset in question, such as interest rate movements, exchange rate fluctuations etc. Nevertheless, the protection seller here guarantees a prefixed return to the originator, who in turn, agrees to pass on the entire collections from the credit asset to the protection seller. That is to say, the protection buyer swaps the total return from a credit asset for a predetermined, prefixed return.

 

Credit default swap: Credit default swap is a refined form of a traditional financial guarantee, with the difference that a credit swap need not be limited to compensation upon an actual default but might even even cover events such as downgrading, apprehended default etc. In a credit default swap, the protection seller agrees, for an upfront or continuing premium or fee, to compensate the protection buyer upon the happening of a specified event, such as a default, downgrading of the obligor, apprehended default etc. Credit default swap covers only the credit risk inherent in the asset, while risks on account of other factors such as interest rate movements remains with the originator.

 

Credit linked notes: Credit linked notes are a securitized form of credit derivatives. The technology of securitisation here has been borrowed from the catastrophe bonds or risk securitization instruments. Here, the protection buyer issues notes. The investor who buys the notes has to suffer either a delay in repayment or has to forego interest, if a specified credit event, say, default or bankruptcy, takes place. This device also transfers merely the credit risk and not other risks involved with the credit asset.

 

 

 

 

 

 

 

Eastern Europe A Health Care Market Worth Looking At

ROMANIA’S PRIVATE HEALTH CARE A NEW FRONTIER

 

By Melvin J. Howard

 

 

The Romanian healthcare system is in a transition period, the Government taking determined measures for the rehabilitation, restructuring and privatisation of a part of the healthcare services. The public health expenditure in Romania is relatively low, about 2% of GDP or about US$ 46 per capita (out of which ca US$ 20 per capita is spent on pharmaceuticals).

 

There are 414 hospitals, with a few private ones as an exception. There are about 600 polyclinics, 80% of them public. The number of private polyclinics has continuously increased during recent years. The total number of hospital beds was 164,500, equal to about 7.3 per thousand inhabitants. However, the number of hospital beds gives only a limited indication of the quality of healthcare provided. Most of the public hospitals are struggling with financing their day-by-day operations under the constraints of an insufficient and frequently delayed budget; in most cases very little has been actually done for facilities and equipment modernisation, except for few cases where international grants or loans have been received. The rehabilitation of the public hospitals involves a huge financial effort, which will be supported partly by international financing institutions, among which World Bank has had the prominent role so far.

 

Due to the existing demand for a quality alternative to the public healthcare system, the private system started to develop; I strongly believe there is an emerging affluent class that affords and looks for high quality – high cost healthcare. On top of this local affluent class in towns like Bucharest there is a significant expatriate community, many of whom can afford and welcome private hospital care.

 

 

             The most visible private healthcare initiatives are outlined below:

Medicover – set up by Oresa Ventures in 1995 (similar to operations owned in Poland, Hungary, Estonia), has reached a turnover of Euro 5.2 million in 2001 (a 42% increase compared to the previous year). The company has over 10,000 patients on a subscription basis and its laboratories conducted 2.3 million tests in 2001. It has healthcare units in six Romanian cities. Target clientele: affluent physical persons, entrepreneurs, staff of multinationals, etc.

 

Medsana Medical Center – owned by Greek investors, made US$1.4 million in net revenues in 2001. Is planning to invest in building a private hospital.

 

Unirea Medical Center – has two clinics in Bucharest and a network of partnerships in 17 towns.

 

Biomedica – besides outpatient clinic has rented six hospital rooms from the public system in order to be able to provide more complete services to its patients.

 

Doris Medical Center – a private clinic with a special focus on social security/ labour healthcare planning to extend but delaying the decision due to its inability to raise ca US$ 5 million.

 

Interamerican, a Greek insurance company is expected to start the building a private hospital, a project estimated at US$ 13 million.

 

        On top of these, there are also numerous dental clinics. I should note that all these private healthcare centres are still dependent on public hospitals for providing more complex surgery; a high quality/high price hospital is for sure the missing link in this top tier healthcare system. As a general rule, such private healthcare operations have developed in urban areas exclusively, occupying first the most lucrative market niches (diagnosis, dental care, beauty centres, cosmetic surgery) and to a lesser extent the “acute” healthcare, such as hospitals.

 

        Private medical services have gained impetus during the last years, the market being estimated at a few tens of millions of dollars. The development of private medical insurance will contribute significantly to the development of this sector.

        The 2001-2004 Romania’s Government Privatization Strategy (annexed), opens a whole new prospective to the health care business development opportunities in Romania. This program came just along other existing privatization programs of Eastern Europeans’ Governments. You will find this situation in Croatia, Bulgaria, Slovakia, Ukraine, Hungary and Czech Republic.

        As of now the Privatization Strategy allows the private sector to:

 

1.    Invest in new facilities.

2.    Invest in public hospitals and take over their management, totally or partially without the sale of the assets,

3.    Enter into management and administration contracts with public owed hospitals.

 

        At this moment, the Romanian Government intends to go full speed ahead with private initiatives to see what would be the best method and best suitable way for private capital participation in the health care sector.