More on Budgeting

Capital spending expected to be tight in 2013

As healthcare providers brace themselves for big changes to reimbursement models, many are taking a conservative approach to their capital budgets. As a result, capital spending in 2013 will likely be flat or slightly down compared to 2012, predict experts at several healthcare group purchasing organizations.

While spending is expected to be tight in 2013, changes to budgeting patterns make it difficult to pinpoint what exactly is going to happen, said Mike Clemens, vice president of capital equipment and diagnostic imaging, sourcing operations, at Irving, Texas-based supply contracting firm Novation.

[See also: Reimbursement cuts expected to hurt capital spending growth rate in 2013]

“The trend has been that hospitals are not budgeting for capital as they did before the economy issues, but (they) continue to buy when needed, which makes it much harder to predict because of the episodic purchasing practices,” said Clemens.

One area where Clemens expects to see more spending despite the belt tightening is construction.

“We are seeing a lot of capital spending taking place with construction projects,” he said. “Some of the studies indicate that healthcare construction in the U.S. will grow by 3 to 5 percent for 2013.”

But, overall, Clemens anticipates that capital spending in 2013 will not be much different than 2012.  

[See also: Banner Health cuts $41.5M from the supply chain]

“I think the capital spending story really hasn't changed much over the last couple of years, and we will continue to see this trend until healthcare reform and the general economy get sorted out,” he said.

Healthcare reimbursement reforms are driving many providers to keep spending near the same level as last year, said Alven M. Weil, director, PR and communication at Charlotte, N.C.-based Premier healthcare alliance.

“Providers have already been cut $80 billion over the last three years through changes in federal bad debt requirements, Medicaid DSH cuts and coding cuts. This excludes ACA-related reductions,” said Weil.

Premier recently released its 2012 economic outlook in which 74 percent of the 617 respondents – primarily hospital C-suite and materials and practice area managers – indicated the largest factor motivating reduced spending growth is reimbursement cuts.

“(Providers) also face a reduction in payment from Medicare of about $155 billion over 10 years to help fund the expansion of healthcare coverage through the ACA,” said Weil.

Mike Reid, vice president, construction, capital and facility services at St. Louis-based GPO Amerinet also expects capital spending to be flat over 2012.

“Indications from our members show capital spending to remain about the same in 2013,” said Reid.  

Reid believes healthcare providers’ uncertainty about reimbursement reform is a big reason for the conservative spending. Rapid IT advancements also play a part, he said.

“With the continued rapid pace of new technology and improvements on existing technology, determining the absolute right time to make the investment when something new and/or improved might be just around the corner is challenging,” said Reid.

However, Reid thinks for those providers who do make capital investments this year, IT is among the most likely places they will spend.

“From healthcare capital budgets we’ve seen, IS/IT spending is always top of the list, both in hardware and software,” said Reid.