Article
Financing tribal hospitals: what tribal health organizations should know before accessing outside capital
More than ever, tribal and tribal-designated hospitals require access to capital to meet their missions and care for the communities they serve. While financing options exist, many organizations face unique challenges due to federal funding structures, land ownership considerations, sovereign status, and varying levels of investor familiarity with tribal healthcare economics.
Despite these considerations, tribal healthcare organizations may have opportunities to access a range of financing structures with appropriate preparation. Sage Memorial Hospital's recognition as the 2025 Bond Buyer Deal of the Year provides one example of a tribal healthcare organization accessing the capital markets through a tailored financing structure. In our opinion, the Bond Buyer selected Sage Memorial Hospital for the award in large part for its unique structure and transformative impact on a large region within the Navajo reservation.
Why capital access matters
A changing environment
Many tribal hospitals were once built to serve smaller populations. We feel today's demands are fundamentally different. The need for capital investment shows up every day—in aging facilities, examination rooms that no longer meet modern standards, and clinical programs that cannot launch because a physical space does not exist.
Growing infrastructure needs
These compounding pressures intensify alongside rising construction costs, inflationary pressure, and growing technology investment requirements. Substantial changes in the managed care landscape, particularly in rural areas, may mean that tribal facilities have even more importance for their entire region, irrespective of the types of patients for which they care. Yet the stakes are especially palpable for tribal organizations that serve communities with fewer alternative sources of care despite a more complex pathway to debt and capital markets.
What distinguishes tribal healthcare financing is the revenue structure. Unlike not-for-profit hospitals that primarily collect third-party reimbursement, tribal organizations rely on a blend of funding sources that may be less familiar to some traditional healthcare investors: Indian Health Service (IHS) funding, 638 self-determination revenue, and 105(l) lease revenue in addition to Medicare, Medicaid, and commercial payers. While some programs support durable financial strength, they may also require additional explanation to investors. These may include funding sources that some investors have not previously underwritten, with complex legal structures rooted in federal Indian law and sovereign status enforceability questions that investors may perceive as risk if left unexplained. In our view, clearly explaining this complexity is important for tribal organizations navigating these structural considerations. Helping investors understand the economic characteristics underlying these financing opportunities can help support a more informed evaluation.
In our view, the financing process for tribal hospitals and health care facilities can be organized around five key steps:
- Understanding the current financial position
- Developing a long-range financial perspective based on projections
- Preparing the organization to pursue financing
- Building the right financing team
- Executing the transaction
Understanding the current financial position
In our view, a sound financing strategy begins with understanding what an organization can sustainably afford. A thorough assessment of revenue sources, balance sheet strength, and financial infrastructure is the foundation for any borrowing decision. Before pursuing financing, organizations benefit from assessing, and often seeking to improve, financial performance in each of these dimensions.
Assessing and optimizing revenue sources
Third-party revenue
Healthcare investors and lenders are accustomed to evaluating Medicare, Medicaid, and commercial insurance as primary revenue streams. For tribal healthcare organizations, this revenue can represent a significant share of total receipts, and its quality matters enormously to capital markets. Organizations may benefit from evaluating opportunities to improve revenue cycle performance, documentation quality, collection effectiveness, and contracting.
Federal program revenue: IHS, 638, and self-determination funding
Federal program revenue, a defining feature of tribal healthcare economics, adds complexity to the revenue structure of most tribal healthcare organizations, and therefore, it is among the funding streams that may require additional explanation to outside investors. IHS base funding and 638 self-determination contract revenue have historically represented recurring sources of funding that many tribal organizations have managed for years without ever thinking about how an investor might evaluate them.
These funding sources are recurring and meaningful to the financial picture, but they remain underutilized. They also carry an important caveat: they are subject to annual Congressional appropriation and cannot be projected with the same certainty as commercial revenue. Conservative planning assumptions are essential.
Section 105(l) of the Indian Self-Determination and Education Assistance Act provides a framework under which eligible tribal organizations may enter into facility lease arrangements with IHS. Depending on the applicable arrangement, allowable lease compensation may include certain facility-related costs. Tribal organizations considering the use of 105(l) lease revenue in connection with a financing should work with experienced legal and financial advisors to evaluate eligibility, structure, appropriation risk, and the treatment of such revenue. When structured carefully, 105(l) revenue can serve as a foundational element of a bond or loan repayment package supporting debt capacity, though it may take some revenue forecasting and specific analytical methods. In our experience, some organizations may have opportunities to evaluate whether their existing lease arrangements appropriately reflect available financing considerations. Yet like all federal program revenue, 105(l) appropriations are subject to Congressional action. Organizations should consider conservative assumptions and evaluate their ability to service debt under downside scenarios, including potential reductions or changes in appropriation levels.
Building/developing financial infrastructure
Financial reporting systems, processes, and governance are among the factors lenders and investors may consider when evaluating a financing. Weak financial reporting infrastructure may make the underwriting process more difficult, even when an organization otherwise demonstrates strong financial performance. Robust financial processes and timely quarterly financials are critical to meet requirements and demonstrate the financial infrastructure for intrinsic financial sustainability.
Developing a long-range financial perspective based on projections
Long-term planning
Investors also seek to understand expectations for future performance. In our experience, a credible, well-reasoned long-range financial forecast can be an important tool in the financing process. Five-year financial projections and strategic, capital, and workforce plans are among the key elements needed to build a complete vision of the organization’s future.
Building financial altitude
Organizations need sufficient financial strength before undertaking major projects. A feasibility study can help assess whether an organization can afford a proposed project, including both the debt required to finance construction and the ongoing operating costs the project may generate. Conducting this analysis before committing to a project size or financing approach can help an organization evaluate transaction size in the context of projected financial capacity and long-term sustainability.
Early understanding of the “capital stack”
Most large-scale projects require multiple funding sources. Early capital stack planning—identifying grants, federal programs, unrestricted reserves, philanthropy, tax credits, and debt financing—creates a realistic picture of funding sources.
Potential sources in a tribal healthcare capital stack include:
- Grants from federal, state, philanthropic, and tribal sources
- Federal program funding (IHS, Department of Agriculture, and others)
- Equity in the form of unrestricted cash reserves
- Tax credit programs that may apply to tribal lands and facilities
- Philanthropy from individual and institutional donors
- Debt financing through bonds, bank loans, or other instruments
Preparing the organization to pursue financing
Organizations preparing to access external capital may benefit from evaluating opportunities to strengthen financial and operational performance before pursuing financing. Priority areas include clinical documentation, coding optimization, revenue cycle management, and contracting, each of which may improve cash flow available to support debt service.
On the federal side, organizations may benefit from working with advisors experienced in tribal healthcare financing to evaluate 105(l) lease arrangements, available IHS programs, and potential IHS Joint Venture Construction Program opportunities. These opportunities are not uniformly understood, even by organizations that have navigated federal programs for decades.
Governance readiness is key at this stage. Investors evaluate board engagement, financial oversight, and clear decision-making structures as indicators of organizational resilience. This not only nurtures investor confidence but also protects the organization and its community.
Building the right financing team
Complex tribal healthcare financings require multidisciplinary teams with deep, focused expertise in each relevant discipline. Assembling that team early in the process can be an important part of transaction preparation.
In addition to engaging tribal leadership early, a financing team may include the following participants:
- Tribal legal counsel: Expertise in federal Indian law, sovereign immunity, and tribal transaction structures
- Municipal advisor: Advises the organization on financial strategy, transaction structure, and capital-market considerations, subject to applicable regulatory duties
- Investment banker/underwriter: Facilitates the transaction and connects the borrower to capital markets, with a role and regulatory obligations distinct from those of a municipal advisor
- Accountants: Financial reporting, audit compliance, and disclosure support
- Healthcare consultants: Operational and clinical expertise throughout the process
Key attributes of a strong finance team
Healthcare operations expertise
A financial advisor who deeply understands healthcare operations can also translate between the healthcare world and the finance world in ways a pure capital markets firm can sometimes struggle with. The standard of care distinction between a fiduciary advisor and an investment banker matters. Depending on the financing structure, both may play important but distinct roles.
Understanding investors
Beyond credit quality, investors evaluate transaction structure, namely what revenue streams secure the debt, what covenants apply, and what protections exist if performance deteriorates. For tribal healthcare financings, the security package may include 105(l) lease revenue and other federal funding streams that require investors to understand those sources well enough to be comfortable with them as collateral.
Sovereign immunity can raise important enforceability considerations for investors. Experienced tribal legal counsel can help explain the applicable legal structure, available remedies, and transaction-specific considerations. Providing investors with clear information regarding these issues may help them more fully evaluate the associated risks.
Executing the transaction
For organizations that have done the preparation work, the transaction execution phase becomes much more manageable. The up-front work pays dividends throughout. Based on our experience, the process from initial planning through closing for a complex tribal healthcare financing may take 12 to 24 months or longer, depending on the circumstances. Organizations that begin planning early with a realistic sense of the timeline are better positioned to manage without the pressure of construction deadlines forcing premature decisions.
Conclusion
Successful access to capital is not simply about borrowing money. Tribal healthcare organizations may have access to financing tools that warrant consideration as part of a broader capital strategy. With the right preparation, partnerships, and strategy, organizations can develop the organizational readiness to use them responsibly, engage the specialized expertise needed to navigate this complex process, and build the facilities and infrastructure needed to serve future generations.
Sage Memorial secured $80 million, which recapitalized its balance sheet and funded completion of its replacement hospital, new medical office building, and new workforce housing.
Lessons learned for executive and board consideration:
- Start planning early
- Avoid financing after construction begins.
- Right-size the debt
- Align debt with sustainability.
- Educate investors
- Transparency may help investors evaluate perceived risk.
- Build the right team
- Multidisciplinary expertise matters.