If it seems like many hospitals and health systems are spending less on facilities, it’s because they are.
Murray Wolf, Publisher
In a new article in HealthLeaders magazine, Nick Barto, senior VP for capital finance for Catholic Health Initiatives (CHI), states that the budget for routine replacement and facility repositioning and expansion accounts for 39 percent of the system’s capital spending this year, compared with 84 percent in 2010. When you consider that is the nation’s second-largest faith-based health system, with an annual capital budget of $1.1 billion, that is a significant drop off indeed.
Where is all that capital going instead? Information technology is earmarked for 37 percent of CHI’s capital spending this year vs. just 6 percent in 2010, and spending on “strategic capabilities and growth” with take 24 percent of the budget vs. 10 percent three years ago.
Mr. Barto said the shift will help CHI to gain efficiencies “in this new era of health reform, and generate the revenue to sustain the ministry.”
Unfortunately for healthcare real estate professionals, CHI’s new attitude toward capital spending is not unique, as we have heard repeatedly at recent industry conferences. But, on a brighter note, some believe that the reduction in capital spending will eventually force more providers to monetize medical office buildings (MOBs) and other non-core assets, and will motivate them to use third-party developers and investors to pay for new facilities — especially when interest rates inevitably begin to rise and providers face higher capital costs from tax-exempt bonds and other sources.
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