Healthcare Business News

Healthcare capital outlays seen making comeback

By Melanie Evans
Posted: December 19, 2012 - 7:15 pm ET

One snapshot of capital spending by hospitals, physician groups and ambulatory-care centers found that budgets for information technology, buildings and other investments were somewhat more likely to increase than to shrink during the past year.

In an online survey of 600 executives, managers, providers and others by Premier, a member-owned group purchasing organization and collaborative, 41% of respondents said their capital budgets grew in the past year. In comparison, one-third reported a drop in their capital budgets. The remaining respondents saw budgets stay the same.

Capital spending in healthcare stalled as the economy faltered—a trend that has helped to slow the nation's health spending growth and improve hospital cash reserves and balance sheets. But the scaled-back spending has also left hospitals to operate with older facilities and there are some indications that spending has started to rebound.

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National spending on healthcare construction, renovation and equipment dropped in 2009 as U.S. health spending cooled to the slowest growth on record in the 50 years since comparable data were first collected. And for the first time in 2010, national spending on construction and equipment declined for a second straight year. Hospitals and health systems that have borrowed in the past for capital projects have deferred spending in recent years, credit rating reports show. Moody's Investors Service reported a 4.5% drop aggregate capital spending in 2010 from 2009 to $25.4 billion among 400 stand-alone and single-state health systems.

But federal projections for health spending and recent capital budgets suggest a reversal.

Actuaries with the CMS project a modest 1.9% growth in capital spending in 2011 and slightly faster growth of 3.3% in 2012, compared with the 8% average annual growth since 1960. Health spending figures for 2011 are not yet available. Moody's Investors Service said aggregate hospital and single-state system capital spending totaled $27 billion in fiscal 2011, an increase of 6.3%.

Premier's survey suggested continued heavy investment in information technology by hospitals and medical groups.

About 43% of respondents surveyed by Premier listed their largest capital investments for the coming year as IT and telecommunications. Hospitals and health systems have poured capital into IT and acquisitions in recent years, according to ratings reports.

The University of Michigan's hospitals will see a strain on its finances for fiscal 2013 because in part of its IT investments, according to Moody's. "Investments in IT are targeted to improving patient safety, creating better ways for patients to communicate with their caregivers and also improving efficiency in the clinical workflow," Doug Strong, director and chief executive officer of the University of Michigan Hospitals and Health Centers, said in a written statement. "We continue to invest in clinical equipment," he said.

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