U.S. Nonprofit Hospital Capex Rising
According to a survey conducted by Fitch Ratings, the majority of nonprofit hospitals expect capital spending to either increase or remain at current levels over the next five years. Many factors are influencing capital plans, including potential decreases in reimbursement levels, shifting clinical practice patterns from inpatient settings to outpatient settings, and the possible implementation of the Patient Protection and Affordable Care Act (PPACA). However, capital expenditure levels have historically been correlated to profitability levels. Therefore, a material change in operating profitability may alter future capital plans.
The surveyed hospitals identified information technology (IT) as the highest priority capital expenditure area. IT is a key element of healthcare reform and many current changes in clinical operations. These systems are imperative to nonprofit hospitals in that they allow for greater cost controls, increases in the quality of care, and should help hospitals to adjust to emerging reimbursement methodologies, including pay for performance, quality incentives, and bundled payments.
The survey also indicated that one of the main drivers of consolidation among nonprofit hospitals is the potential for strategic benefits. Strategic benefits include increased scale of operations, diversified service mixes, and enhanced access points throughout the continuum of care. These may be difficult for smaller nonprofit hospitals to achieve on their own.
Limited activity in the capital markets was also indicated in the survey. Only 39% of hospitals intend to issue new debt over the next two years, while almost 60% of hospitals plan to refund existing debt. The most cited reasons for refunding existing debt include interest expense savings, eliminating exposure to bank liquidity facilities, and increasing the percentage of fixed-rate bonds in their debt portfolios. These changes effectively reduce financing-related risks.
The surveyed hospitals identified information technology (IT) as the highest priority capital expenditure area. IT is a key element of healthcare reform and many current changes in clinical operations. These systems are imperative to nonprofit hospitals in that they allow for greater cost controls, increases in the quality of care, and should help hospitals to adjust to emerging reimbursement methodologies, including pay for performance, quality incentives, and bundled payments.
The survey also indicated that one of the main drivers of consolidation among nonprofit hospitals is the potential for strategic benefits. Strategic benefits include increased scale of operations, diversified service mixes, and enhanced access points throughout the continuum of care. These may be difficult for smaller nonprofit hospitals to achieve on their own.
Limited activity in the capital markets was also indicated in the survey. Only 39% of hospitals intend to issue new debt over the next two years, while almost 60% of hospitals plan to refund existing debt. The most cited reasons for refunding existing debt include interest expense savings, eliminating exposure to bank liquidity facilities, and increasing the percentage of fixed-rate bonds in their debt portfolios. These changes effectively reduce financing-related risks.
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