A hospital revenue bond is a public bond to fund existing hospitals for constructing and purchasing new facilities to protect hospitals' income through their daily operations. The bonds are generally financed by the state or municipality of the hospital. Hospital bonds are among the most dangerous (Gondi et al., 2020). This is because the revenues usually support income bonds that can be generated by the particular project. If that is not enough, municipalities are not obligated to repay bondholders using other funds.
Hospital revenue bonds have one advantage: they obtain greater returns, which are higher than an obligation bond, and their default risk attributes. General bonds usually pay lower interest rates than income bonds because the credit behind them allows for such a distant default. For tax purposes, holders receiving interest payments from hospital revenue bonds are exempt from state income taxes. This failure to collect revenue through taxes usually contributes to higher hospital bond prices (Chen, 2020). Due to their default risk, the high return is higher than general bonds. Uncertainty around future changes in the health market and insurance legislation creates an imprevisible climate for hospitals and the commitments they receive (Uckar et al., 2020). If the municipal bond provides low stocks, it is more likely that investors would prefer higher-risk hospital bonds.
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The other advantage is that deductions from the state, local, and federal taxes can be exempted from hospital income bonds' profits. The profits would be used to cover the hospital's running expenses and pay bondholders for the remaining sales. The uncertainty of changes to legislation in health insurance carries a greater risk to hospital bonds, which depend on government-funded programs such as Medicare and Medicaid.
References
Chen, J. (2020, October 8). Hospital revenue bond . Investopedia. https://www.investopedia.com/terms/h/hospital-revenue-bond.asp
Gondi, S., Beckman, A. L., & McWilliams, J. M. (2020). Hospital Investments in Housing—Banner of Change or Red Flag?. JAMA Internal Medicine , 180 (9), 1143-1144.
Uckar, D., & Tezzele, R. B. (2020). MUNICIPAL BONDS AS A POSSIBLE MODEL OF FINANCING CAPITAL PROJECTS OF LOCAL SELF-GOVERNMENT UNITS. Economic and Social Development: Book of Proceedings , 19-30.
