Conservative capital spending expected in 2012

CHARLOTTE, NC – In its Spring 2012 Economic Outlook report, Premier healthcare alliance reported that impending reimbursement reductions and uncertainty around the potential impact of health reform will likely lead to more conservative hospital capital budget expenditures for the year.

Sixty-five percent of the 730 survey respondents indicated that capital budget expenditures for 2012 remained flat or increased as compared to 2011. This is down from 69 percent in fall 2011 and 72 percent a year ago.

Additionally, 35 percent of respondents suggested a decrease in capital expenditures, versus 31 percent in fall 2011 and 28 percent a year ago.

“Our members have expressed that their capital budgets will be pressured as reimbursement declines over the coming years, and economic uncertainty further convolutes the situation,” said Premier COO Mike Alkire. “But we expect that, as history has shown, we’ll see a correction in upcoming months and years, even though this is a unique time in healthcare.”

Future reimbursement cuts were cited by 76 percent of all respondents as one of the top three trends having the largest impact on their organizations over the next 12 months, with 53 percent citing healthcare information technology (HIT) requirements. Forty-three percent of respondents expect to make the largest capital investments over the next 12 months in HIT and telecommunications, up from 35 percent last spring.

“Advanced HIT is a necessity as we’re facing new models of care delivery to include accountable care,” said Alkire. “Providers need capabilities beyond EHRs to facilitate true population health management and connect care across various care sites and the continuum of care. Providers need relevant, meaningful and real-time information at the point-of-care delivery to make data-driven decisions about how to treat patients.”

Capital spending in 2011 is “generally flat” over 2011, agreed Mike Reid, vice president, construction, capital and facility services at St. Louis-based group purchasing organization Amerinet.

“However, indications are that construction and renovation is beginning a bit of an upturn, which in turn will drive equipment purchases,” he said.

Reid confirmed that HIT capital investments will be made this year.

“Every budget we see has considerable investment in IT-related hardware and software,” he said.
Other areas where Amerinet expects its members to invest include diagnostic imaging, cancer care and emergency department upgrades, said Reid.

The investments being made now are more about replacing or expanding existing systems and less about designing and launching new programs and services, according to Reid.

Providers are “not sure where healthcare reform is going to take (them), therefore, it’s hard to speculate what are the right investments,” he said.

Mike Clemens, vice president, capital equipment and diagnostic imaging for Irving, Texas-based supply contracting firm Novation noted that the majority of hospital executives expect to spend money on IT in the next few years “whether they want to or not.”

“They are being forced to do it because of what they are thinking is going to be coming down due to healthcare reform,” he said.

Clemens said another area where he is seeing slight spending growth over 2011 is in equipment such as MRI, CT and ultrasound machines that have solid reimbursements and can bring dollars into a hospital or health system.

“Imaging is a big revenue generator and can help with throughput and help with competitiveness. Sometimes you have to deal with competition,” he said, adding that healthcare consumers are more educated and savvy than ever before and know to seek out providers with the most up-to-date equipment.

“Patient pressure could be driving some of this capital spending,” he said.

While Clemens believes 2012 will be mostly flat over 2011, he also thinks many hospitals will loosen the purse strings over the next few years.

“… (P)retty soon you have to release some of that money and buy what you have to have,” said Clemens. “I think we’ll see an uptick over the next two to three years.”