Fitch says hospital capital spending will rise

A new report by Fitch Ratings finds that hospitals will increase their capital expenditures in the coming years.

Fifty-three percent of not-for-profit hospitals say their expected capital expenditures will increase over the next five years, up from 45 percent in 2012, according to the Fitch report.

Fitch noted that historically, hospital capital expenditures tend to rise with profitability. That was not the case last year, but the ratings agency said that the decreased capital spending in 2014 reflected increased investments in outpatient facilities and integration strategies as well as continued investment in information technology, all of which are typically less expensive than inpatient facilities. The decrease also likely reflected uncertainty surrounding the net impact of the Affordable Care Act (ACA) provisions that were implemented in 2014.

"Increased certainty regarding the implementation of the (ACA) following the Supreme Court's upholding of key provisions of the act, stable operating profitability during implementation of key (reform) provisions over the past three years and increasing patient consumerism are contributing to the increased projected capital spending," said Fitch Director Adam Kates in a statement.

The increased capital expenditures for the non-profit sector appears to dovetail with a report that Fitch released at the start of 2015 forecasting a bullish period for for-profit hospitals.

However, the capital spending optimism is not equally shared. Fitch noted:

  • Larger hospitals and systems with annual revenue more than $1 billion are less likely to see capital expenditures increasing.
  • Among those hospitals with $2.5 billion a year or more of revenue, 43 percent see expenditures increasing over the next 12 months.
  • Among those hospitals with revenue between $1 billion and $2.5 billion, 25 percent say they expect an increase over the next year.
  • But it's 64 percent among those organizations with revenue between $500 million and $1 billion, and 63 percent among those with revenue below $500 million.
  • Hospitals with slightly above average credit ratings (BBB) also said they expected their capital expenditures to rise more than compared to hospitals with A credit ratings.

Fitch had previously reported that cash flows were increasing at not-for-profit hospitals, but primarily among those with higher ratings.

"The historical capital spending trends indicate that larger and higher rated hospitals would have lower future capital needs relative to lower rated hospitals," Fitch said, adding that "lower rated hospitals spent less and are therefore more likely to have pent up capital needs that must be addressed to maintain their competitive positions."

To learn more:
- read the Fitch statement
- access the report (registration required)

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