There are announcements every week about health systems spending nine- to 10-figure budgets on replacement facilities, new bed towers, and large ambulatory developments. Yet for every billion-dollar project reported, there are many hospitals and health systems struggling to commit to basic capital improvements of aging and outdated facilities. So, how do boards of directors replace and expand aging infrastructure in a low-margin, capital-constrained environment with negligible prospects for long-term revenue growth?
There are many pertinent reasons why health systems are delaying major capital improvements and space modernization, often for facilities originally designed and built half a century earlier:
- Minimal operating margins—many hospitals are operating in the red following the pandemic and currently due to staffing costs
- Increased staff spending (20 to 30 percent higher), without corresponding payer reimbursement increases
- Highly competitive market dynamics that minimize the opportunity for volume and revenue growth once the health system must pay for the added interest and depreciation on facility developments
But ignoring capital improvements indefinitely means ignoring the negative strategic implications. This article highlights the impact of delaying modernization of facilities and some of the tough questions and decisions boards will face as they work to create the best care environment for their communities.
This article was originally published by the Governance Institute in May 2023.
Edited by: Matt Maslin
Published June 15, 2023
