Hospital Capital Spending Beginning to Thaw

Results of a new survey suggest that brighter days might be ahead for hospitals that have had to freeze capital spending.

After a period of capital budget cuts and freezes, hospitals are seeing a thaw in capital expenditures, according to a survey published in the Premier healthcare alliance's September 2010 Economic Outlook analysis.

In the survey, 69% of healthcare representatives indicated that capital budgets for 2010 remained flat or increased compared to 2009; overall, 42% reported an increase in spending while 32% saw a decrease. For those whose budgets decreased or remained unchanged from last year, approximately 66% scaled back projects already in progress that involved new construction/renovations and the acquisition of clinical and information technology.

When asked about the top areas in which they are trying to reduce costs in the next 12 months, commodity pricing (27%), physician preference utilization (25%), and pharmaceutical utilization (19%) were cited most often.

The semiannual Economic Outlook report is designed to help hospitals better estimate supply cost inflation during their budget processes, projecting rates of inflation for the ensuing 12 months. The September edition showed that annual market inflation rates will increase on average between 1% and 3.7% across categories such as cardiovascular services, facilities, imaging and nursing.

Not surprisingly, health care reform issues were top-of-mind, as more than 80% of respondents said that they consider “healthcare reform and changes in reimbursement" and "EHR implementation and data storage" as the most important health trends today. And 73% anticipate these two areas will have the greatest impact on their financial performance over the next year.

According to Wes Champion, senior vice president of Premier Consulting Solutions, hospitals need to identify key areas offering cost savings and revenue enhancement opportunities to offset reimbursement cuts, including the following:

  • Clinical care delivery through reductions in variability, mortality and hospital-acquired conditions in preparation for value-based purchasing;
  • Work flow and work force efficiency specific to enhancing work force management and patient throughput;
  • Resource optimization including proper resource standardization and utilization in areas such as ancillary utilization, length of stay and physician preference;
  • Supply chain and non-labor strategies such as whether to outsource purchased services, sourcing, procurement and payment, and inventory and distribution;
  • Revenue enhancement through improvements in revenue cycle and reimbursement (Medicare/Medicaid cost reporting, managed care contracting, coding); and
  • Strategies aligning incentives for physicians to assist with cost savings, compensation development and strategies, and utilization benchmarking.

For more information on the Premier report, click here.

What are you seeing at your hospital in terms of capital spending? Are projects that were put on the back burner starting to gain momentum, or is your organization still far away from that point?