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Hospital spending lags behind depreciation

Hospitals have been forced to direct limited resources toward immediate needs, at the cost of long-term investments in facilities.

By Katherine Vogt, amednews staff. Jan. 26, 2004.

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Nearly half of the nation's hospitals haven't spent enough on capital investments to stay ahead of the depreciation of their facilities and equipment, jeopardizing their overall quality and their potential ability to meet future demand for services, according to a new report.

A study by the Healthcare Financial Management Assn. found that 41% of medical institutions were not investing enough capital to keep ahead of asset depreciation, posing a threat to their viability in the future.

"As we think about that, it can mean hospitals will have to increasingly spend their capital resources on replenishing and repairing their plants and equipment as opposed to spending on new technologies. That potentially has an impact on a hospital's ability to perform the way they want to," said Richard L. Clarke, president and chief executive of the Westchester, Ill.-based HFMA.

The report, "Financing the Future," was the second installment to be released in a yearlong series of six reports on capital spending in health care. The first report found that the number of hospitals with broad access to capital was dropping.

The latest report found that capital spending on fixed assets, such as buildings or equipment, increased only about 1% from $23 billion to $23.7 billion between 1997 and 2001. At the same time, demand for inpatient services increased by 7.7% and demand for outpatient services grew by 19.6%.

It also found that, although construction spending as a total dollar amount was increasing, it was decreasing as a percentage of total health care spending.