Healthcare providers plan to increase the amount they're spending on new infrastructure, information technology and other projects as the economy and their finances improve. But the scope of these projects likely will remain small and will be funded by cash and investments rather than new debt, a new report found.
A total of 53% of healthcare providers surveyed by credit rating agency Fitch Ratings indicated that they plan to increase capital spending over the next five years, up from 45% in 2012.
Moreover, only 17% of survey respondents expected their capital expenditures to decrease compared with 19% in 2012.
Yet less than a third of providers plan to use debt to finance those capital needs.
The uptick in spending comes as the future of the Affordable Care Act has been assured in the courts and providers have found the new regulations manageable, and even beneficial.
As financial metrics improve, the expected spending increase suggests that healthcare providers may be feeling more optimistic about the future, Fitch analysts noted.
All three of the major credit rating agencies found that not-for-profit hospital financial metrics improved in 2015. Moody's Investors Service and Standard & Poor's both cited the better operating performance in revising their outlook on the sector to stable from negative.
But even as providers have gained some breathing room, they're also preparing to deliver care in new ways. New reimbursement models that focus on value are shifting care away from high-acuity inpatient settings to more cost-effective outpatient settings.
While health information technology remains a priority for providers, outpatient care has become an increasingly important focus, Fitch's survey found. Only 26% of hospitals expressed confidence that their outpatient centers could meet the demand for care, while 75% were satisfied with their current inpatient facilities.
With the focus on smaller projects, fewer health systems plan to issue bonds to fund their capital needs, or 29% in 2015 compared with 39% in 2012, according to Fitch. Higher-rated systems were more likely to be planning a bond issuance.
Healthcare borrowing reached a 10-year low last year but the market perked up in the first half of 2015 as providers gained more confidence about their financial outlook. Even so, most of the bond issuances were targeted toward refinancing old debt rather than new projects.
But bond refundings could be slowing down, Fitch noted, with only 46% of providers this year planning to refinance, down from 55% in 2012.
Despite some concern that a federal interest rate hike may be on the horizon, interest rates have been so low for so long that most of the refunding has already been done, said Steven Kennedy, senior managing director at financial services Lancaster Pollard.
Federal Reserve Board Chair Janet Yellen this year suggested that the time may be right for an interest rate increase. But during a closely watched policy meeting last week, the Fed decided to leave interest rates unchanged amid concerns about the larger global economy.