March 10, 2004
Nearly three-fourths of CFOs said they will increase their hospitals' capital spending over the next five years. CFOs plan to increase capital spending by an average of 14 percent per year, with spending in certain regions of the U.S. rising more than others. These findings are according to survey findings published in the third report of Financing the Future ¾ a series led by HFMA in partnership with GE Healthcare Financial Services. HFMA and PricewaterhouseCoopers conducted the research for this study.
In contrast to expected capital spending, actual average annual increases in capital spending between 1997 and 2001 were merely 1 percent. Driving the increased spending expectations are three primary, often competing issues CFOs face in operating their companies: staying ahead of deteriorating fixed assets, a need to upgrade technology, and increasing capacity.
States expected to need the most significant percentage increases in capital spending are Idaho, Georgia, Florida, California, Tennessee, Alaska, Texas, Rhode Island, Arkansas, and Arizona.
These states reflect some or all of the key factors influencing future capital needs, such as high projected rate of population growth, low historical capital spending, potentially diminishing health status of residents, and high physician demand.
States expected to experience comparatively lower acute capital needs are Louisiana, Ohio, Iowa, Maine, Montana, Nebraska, Wyoming, Hawaii, and South Dakota.
IT and Facilities Top List of Capital Expenditures
CFOs overwhelmingly cited new technology as a primary contributor to their increasing capital budgets. Among the three main areas where CFOs will focus their technology spending are digital radiology systems (72 percent), computerized physician order entry systems (64 percent), and major information technology systems (61 percent). IT spending is estimated to grow by nearly 9 percent per year to reach $30.5 billion in 2006.
CFOs also cited plant and facilities as an important area for future spending and offered two key views on the state of their infrastructures. Nearly one-third indicated that their hospitals are in worse condition than they were 10 years ago, and almost half believe their infrastructures are deteriorating faster than they can make capital improvements.
Looking to the Future
As hospitals address these capital spending pressures, more facilities are working to ensure their strategic planning is farsighted, objective, and able to meet capital development and spending needs. "The challenge is in setting the mix of capital expenditure between facilities, high-tech equipment, and information technology," said healthcare futurist Jeff Goldsmith, who was quoted in the report. "Even wealthy institutions do not have enough capital to meet all three needs simultaneously. Managing the tradeoffs between function and efficiency, support of safe clinical care, and modernization of diagnostic services is a complex and highly political process that must be guided by calculations of return on the institution's capital."
The current Financing the Future report includes guidelines on how to develop a scorecard for forecasting future capital needs.
SOURCE:
Financing the Future Report 3: "How Are Hospitals Financing the Future? The Future of Capital Spending." HFMA members will receive a summary of the report with their March issue of hfm. Members can access the full report for free, and nonmembers can purchase a copy, from the Financing the Future web site.
Additional Resources
- Financing the Future reports 1 and 2
- The Future of Not-For-Profit Healthcare Capital Financing
- Black Ink - Capital Articles
- Black Ink - Capacity Planning Articles
- Internet Guide to Capacity Planning (members only)
- Capital: Comprehensive List of HFMA Products and Services
If you have questions or comments about HFMA Wants You to Know, contact editor Laura Noble.
HFMA Wants You to Know ISSN: 1540-0697. Volume III, Issue 5. Copyright 2004, Healthcare Financial Management Association. All rights reserved.