Hospital Loan Assistance Programs:

Actions Needed To Reduce Anticipated Defaults

HRD-79-64: Published: Jun 27, 1979. Publicly Released: Jun 27, 1979.

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Two major loan assistance programs, the Department of Health, Education, and Welfare (HEW) Hill-Burton program and the Department of Housing and Urban Development (HUD) Section 242 Mortgage Insurance program, assist hospitals in constructing new or modernizing existing facilities.

Many hospitals with loans guaranteed under the Hill-Burton program or insured under the section 242 insurance program have been experiencing serious financial problems, but neither HEW nor HUD knew the extent or severity of the problem. In response to a GAO questionnaire sent to 380 hospitals participating in these programs, 44 hospitals with loans of about $326 million reported their financial condition as poor or very poor. The financial problems at these hospitals could lead to defaults, closures of modern facilities, and substantial losses to the federal government.

Matter for Congressional Consideration

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Matter: Congress should amend section 242 of title II of the National Housing Act to eliminate the mortgage insurance premium on portions of loans guaranteed by HEW under title IV of the Public Health Services Act and to preclude such practices on loans guaranteed and made under title XVI of the Public Health Service Act.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary, HEW, should: (1) make comprehensive risk assessments to identify the risk of default on loans made under the programs; (2) advise Congress of the potential losses and adequacy of loan default funds; (3) issue additional guidance for monitoring loans and implement a viable loan monitoring program; (4) closely monitor the status of hospitals with loans secured with inadequate collateral; and (5) determine and monitor the status of hospital sinking funds to assure that payments are current and sufficient to insure loan repayment, and encourage hospitals without a sinking fund to establish one. The Secretaries of HEW and HUD should: (1) determine whether HUD should retain the unnecessary mortgage insurance premiums paid to date by the hospitals; (2) review their loan portfolio to determine the adequacy of the government's collateral position; and (3) provide regional staff additional guidance on the circumstances in which the various forms of collateral should be accepted.

    Agency Affected:

 

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