Strategy is critical to our current rating assessments because it encompasses all of the fundamental credit factors used in our analysis of not-for-profit healthcare entities--governance, medical staff, services and service area, competition, financial resources, and legal structure. These six factors have not changed over rime and remain the foundation for our credit analysis.
Sound strategic planning is essential to effective organizational and financial performance.

All healthcare executives today are likely to agree with this statement, and also to recognize the need to link strategic planning with financial planning, Yet these views represent a significant leap forward from a rime when strategic planning in healthcare typically produced little more than a large document destined to gather dust on the shelf. Often pursued in a financial vacuum, healthcare strategic planning in years past tended to result in wish lists that could not be implemented or plans that were implemented without a sustainable financial foundation.

Today, healthcare financial leaders, board members, and other executives recognize the importance of using best practice, integrated strategic financial planning to effectively balance organizational strategies with financial capabilities. They know that this balance can significantly improve access to the capital needed to fund strategic initiatives. They still must answer a challenging fundamental question, however: What are the most essential elements of strategy upon which the integrated strategic financial planning process should focus?

A good way to answer this question is to ask the capital market players, namely the rating agencies, bond insurers, and investors in healthcare. In assessing comparative investment opportunities and organizational ability to repay debt, capital market players use extensive due diligence to evaluate hospitals' and health systems' strategies and financial performance. Understanding what they want to know about a healthcare organization, therefore, can provide an invaluable perspective.

To this end, we interviewed leading analysts in the agencies that rate healthcare credits, in the insurers that offer healthcare bond insurance, and in an institutional investor that purchases healthcare debt. These individuals pointed to six strategic concepts that make a critical difference to the decisions made by the capital markets.

Healthcare executives who understand and embrace these six "essentials" can be confident about well-focused strategic and financial planning efforts.

Essential 1. High-Level Strategic Thinking and Integrated Strategic and Financial Planning

The process an organization uses to devise its strategic plan and link it to its financial plan is critically important. "We look first for real evidence of strategic thought ... evidence that the organization's leaders are thinking globally about their business and about the forces that could impact the organization at multiple levels," comments Martin Arrick of Standard & Poor's. "The best organizations all have in common a well-developed, extensive planning process."

"People make fun of talking about process, but process has a huge influence on where you end up," Steve Renn of Ambac Financial Group, Inc., says. John Goetz of MFS Investment Management notes, "We avoid the extremes related to strategy--that is, organizations that either don't seem to have a strategy or whose strategy seems well beyond their means or pie-in-the-sky hopefulness."

The board and senior management is responsible for the development of strategy. "A formal, structured planning process that is supported by the board, CEO, and senior executives is critical," Renn says. "The process should benefit from multiple inputs from people and of resources."

Also, more than one person should be able to articulate the strategy. Rating agencies and insurers, which typically have more access to management than investors, expect board members, senior executives, and key physician leaders to be able to describe the organization's strategy in depth.

Capital market analysis of an organization's strategic planning process frequently focuses on seven key elements of an integrated strategic and financial plan: mission and vision; objectives; initiatives; indicators and targets; action plans; accountabilities; and financial projections.

What is news? More precisely, when is news? Lately, the division has become starker between news that reports the details of past events, and "news" that is a forecast, a best guess, of the outcome of past events, or even of future events.

For some time, I have found fiction of increasingly little interest why should I care about made-up people, when real people have far more interesting lives and are, to boot, real? Much of what passes for "news" I find similarly uncompelling, because it is mere speculation. Worse by far, though, is the "news" that is speculation about speculation.

An example: A hurricane threatens--let's call it Cassandra. The TV news anchor, who has flown into the town most likely to be destroyed cuts to a guy in a sports coat with a computer screen. He is an "expert" on such matters, who confirms that when the storm hits in a couple of days, an apocalypse will ensue, with insured losses that will cause the collapse of insurance and reinsurance companies and disrupt shipping for generations.

When Cassandra takes a slight turn and misses the populated areas altogether, there's nary a change in anyone's routine. As Hurricane Katrina approached New Orleans late in August, the catastrophe modeling agencies fell over each other to forecast the estimated cost of insured losses from a storm that had not yet hit anything. On Friday, Aug. 26, three days before Katrina made its second landfall, RMS forecast insured losses at $1 to $2 billion. AIR Worldwide's estimate that day was a maximum of $600 million. Guess who made the evening "news"?

On Sunday afternoon, RMS upped the ante: "greater than" and possibly "far more devastating than" $9 billion. Monday morning, as the storm hit, EQECAT forecast losses for U.S. insurers from Hurricane Katrina of $30 billion.

By Monday evening, Aug. 29, after the worst of things, estimates were "between $10 billion and $25 billion." The hurricane, in other words, followed a more or less predictable line, while the financial forecasts were all over the map.

What public service was fulfilled by these estimates? And why were they so wildly inaccurate? The only answer to the latter question is a losing proposition: hurricanes are erratic, and impossible to forecast with any accuracy, right up to and after the event. That being the ease, why issue speculative reports containing more hot air than the hurricane itself?

The agencies' forecasts were picked up by news organizations and parlayed into dire predictions of the washing-away of the city of New Orleans by a 28-foot tidal wave. RM8 provided a statistic: New Orleans had $40 billion of insured values, and the surrounding parishes some $110 billion.

The modeling agencies shouted "Fire!" in a crowded media room. The agencies have been very kind to me in terms of access in the past, but really, they must desist from this sort of behavior. The fact is that we really won't know the true losses for weeks, maybe months.

sland of Kauai trembled under the vicious winds of Hurricane Iniki. As a result of the storm, Kauanui lost both her home and the movie production company she co-owned, and was forced to flee to Los Angeles with her three sons. A loan and a job as a modeling scout put her back on her feet. But when Kauanui attended a fashion show and caught a glimpse of the fate that awaited the models she recruited, she knew something had to change. "I saw the girls backstage--they were so emaciated, they were like skeletons," she says. "I said, 'This is so wrong. I am sending girls out there to get skinny and have eating disorders.'"

A NATURAL GLOW: This stark realization was just what Kauanui needed to start Jet Set Management and promote a whole new type of surfer model. She hit the water in search of girls who loved to surf and had a natural, healthy and beautiful look. The response was favorable--Jet Set models were instantly booked for Abercrombie & Fitch as well as Ralph Lauren. They even became the first models for trendy junior-clothing line Roxy.HEALTHY REWARDS: Kauanui has taken Jet Set to new heights. Models range from children to young adults, and the agency has expanded to include artists, entertainers and athletes. Jet Set model Sanoe Lake graced the big screen with a lead role in the film Blue Crush, and Kauanui represents various female professional surfers. Says Kauanui, "My biggest accomplishment is [helping] kids want to be healthy and get out there and have fun

This study examines sources of fecal coliform in Segment 2302 of the Rio Grande, located south of the International Falcon Reservoir in southern Texas. The watershed is unique because the contributing drainage areas lie in Texas and Mexico. Additionally, the watershed is mostly rural, with populated communities known as "colonias." The colonias lack sewered systems and discharge sanitary water directly to the ground surface, thus posing an increased health hazard from coliform bacteria. Monitoring data confirm that Segment 2302 is not safe for contact recreation due to elevated fecal coliform levels. The goal of the study was to simulate the observed exceedences in Segment 2302 and evaluate potential strategies for their elimination. Fecal coliform contributions from ranching and colonia discharges were modeled using the Hydrologic Simulation Program-Fortran (HSPF). Model results indicated that the regulatory 30-day geometric mean fecal coliform concentration of 200 colony forming units (cfu) per 100 milliliters is exceeded approximately three times per year for a total of 30 days. Ongoing initiatives to improve wastewater facilities will reduce this to approximately once per year for 14 days. Best management practices will be necessary to reduce cattle access to streams and eliminate all exceedences. The developed model was limited by the relatively sparse flow and fecal coliform data.Despite tremendous effort, advances in wastewater treatment, and point source reduction through National Pollutant Discharge Elimination System (NPDES) permitting, many streams still do not meet the water quality requirements of the Clean Water Act (CWA). Previously overshadowed by point source discharges, nonpoint sources are now recognized as significant contributors of pollution. Point source pollution results from discrete discharges that can be measured directly, such as municipal and industrial process or wastewater releases from a pipe or spillway. Point sources are continuous sources and have a greater impact during dry weather and low flow conditions.

Nonpoint source pollution, on the other hand, is a wet weather phenomenon that causes a rapid rise and fall of pollutant concentrations. Pollutants are not contributed as discrete, measurable quantities. Instead, they are contributed by runoff from large watershed areas carrying pollutants such as natural nutrients, minerals, metals, bacteria, acids, bases, and toxics. Some of the impacted water is carried by overland flow directly to surface water bodies, while some migrates along the shallow ground water table. Thus, the contribution is diffuse, difficult, and costly to evaluate and commonly results in violations of the local water quality standards.

This paper describes an analysis of point and nonpoint sources of fecal coliform bacteria to Segment 2302 of the Rio Grande River. The main goals of the study were to simulate the observed fecal coliform exceedences in Segment 2303 and to evaluate the impacts of proposed improvements to the sanitary infrastructure in the watershed on fecal coliform pollution. The Rio Grande forms the southern boundary of Texas and serves as a border between the United States and Mexico. As such, the contributing watershed to Segment 2302 lies on both sides of the border. The distinguishing aspects of this study lie in the transnational nature of the watershed and the characteristics of the contributing point and nonpoint sources of pollution.

The research described in this paper includes the development of a watershed model and nonpoint source analysis that can be used to establish a total maximum daily load (TMDL) for the segment. A TMDL is a calculation of the maximum amount of a pollutant that a water body can receive without exceeding water quality standards. Segment 2302 is 1 of 92 water bodies included in the 1999 CWA section 303(d) List of Impaired Waters in Texas because elevated bacteria levels do not support contact recreation. Elevated fecal coliform concentrations in Segment 2302 can be attributed to local nonpoint sources because there are no point source discharges within the segment. Also, the river segment immediately upgradient (Segment 2303 International Falcon Reservoir) has much lower fecal coliform concentrations that do not exceed the Texas water quality standard and therefore contribute very little in fecal coliforms to Segment 2302.