I’m looking for a current benchmark associated with hospital capital spend. Is there a certain percentage of net patient revenue, EBITDA (earnings before interest, taxes, depreciation, and amortization), or some other measure that hospitals and health systems abide by as a best practice for annual spend on big and small capital projects?
Answer: With respect to overall annual capital spend that is funded out of operations, the typical rule of thumb is that it should be no greater than the organization’s annual depreciation allowance. Capital spend on a specific item (e.g., MRI, ultrasound), a return on investment, or a payback analysis should be prepared to determine if the capital investment provides an acceptable return to the organization.
This question was answered by: Michael Neuman, CPA, FHFMA, senior vice president, finance/CFO, Kennedy-Krieger Children’s Hospital, and a member of HFMA’s Maryland Chapter.
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