CHICAGO, March 2, 2004 - Nearly three-fourths of CFOs said they will increase their hospitals' capital spending over the next five years. CFOs expect to increase capital spending by an average of 14 percent per year, with spending in certain regions of the U.S. rising more than others. In contrast, average annual increases in capital spending between 1997 and 2001 were merely 1 percent. Driving this increased spending are three primary, often competing issues CFOs face in operating their companies: staying ahead of deteriorating fixed assets (plant, property and medical equipment), a need to upgrade technology, and increasing capacity.

States expected to need the most significant percentage increases in capital spending are Idaho, Georgia, Florida, California, Tennessee, Alaska, Texas, Rhode Island, Arkansas, and Arizona. These states reflect some or all of the key factors influencing future capital needs, such as high projected rate of population growth, low historical capital spending, potentially diminishing health status of residents, and high physician demand. States expected to experience comparatively lower acute capital needs are Louisiana, Ohio, Iowa, Maine, Montana, Nebraska, Wyoming, Hawaii, and South Dakota.

These findings were based on a survey of CFOs at 460 hospitals and health systems nationwide, and are contained in the third report of Financing the Future-a series led by the Healthcare Financial Management Association (HFMA) in partnership with GE Healthcare Financial Services. HFMA and PricewaterhouseCoopers conducted the research for this study.

HFMA President and CEO, Richard L. Clarke, FHFMA, says, "This report confirms that for hospitals with strong financial performance, plans to significantly increase capital spending may be achievable. However, many hospitals that are struggling will not have the financial wherewithal for such an increase - and many of these will be the very hospitals that need to increase their capital spending the most."

CFOs overwhelmingly cited new technology as a primary contributor to their increasing capital budgets. However, according to a Modern Healthcare/PricewaterhouseCoopers' survey of IT spending, the median IT investment by hospitals as a percent of budget fell from 2.5 percent in 2001 to 2.2 percent in 2002.

States in which hospitals reported a low IT investment rate were Wyoming, Arkansas, South Dakota, North Dakota, Idaho, and Vermont. States in which hospitals had a higher IT investment rate included Arizona, North Carolina, Washington, and New Jersey. Among the three main areas where CFOs will focus their technology spend are digital radiology systems (72 percent), computerized physician order entry systems (64 percent), and purchase of major information technology systems (61 percent).

"With IT spending estimated to grow by nearly 9 percent per year to reach $30.5 billion in 2006, it's clear the industry is seeking to leverage technology to improve patient safety, deliver the highest quality clinical care and enhance operational productivity. Continuing investments in IT infrastructure are critical to accomplish these goals," said Rick Wolfert, President and CEO of GE Healthcare Financial Services.

CFOs also cited plant and facilities as an important area for future spending and offered two key views on the state of their infrastructures. Nearly one-third indicated that their hospitals are in worse condition than they were 10 years ago, and almost half believe their infrastructures are deteriorating faster than they can make capital improvements.

Fifty percent of teaching hospitals expect capital spending to increase at a rate of 15% or more annually. In the past, hospitals in Hawaii, Alaska, North Dakota, and New York reported the lowest average capital expenditure growth rate, pointing to higher capital needs in the future. Conversely, Louisiana, Georgia, and Michigan had a higher expenditure growth rate, indicating a lesser need for capital in coming years. What's more, small, rural facilities and not-for-profit hospitals reported the most aggressive capital spending plans, a pattern which may be tied to improving reimbursement levels in recent years.

As hospitals address these increasing capital spending pressures, more facilities are working to ensure their strategic planning is farsighted, objective and able to meet capital development and spending needs.

"The challenge is in setting the mix of capital expenditure between facilities, high-tech equipment, and information technology," said healthcare futurist Jeff Goldsmith, who was quoted in the report. "Even wealthy institutions do not have enough capital to meet all three needs simultaneously. Managing the tradeoffs between function and efficiency, support of safe clinical care, and modernization of diagnostic services is a complex and highly political process that must be guided by calculations of return on the institution's capital."

The next Financing the Future report, to be issued in May 2004, will address the future of capital access. The report will explore the sources of capital, the relative amounts available from those sources, and the non-traditional sources that might be tapped as capital need grows and ease of access to traditional sources diminishes.

The purpose of Financing the Future is to give healthcare professionals the information, strategies and tools they need to seize the opportunities presented by increasing demand for services as well as innovations in technology and care delivery. Seizing these opportunities requires capital, yet rising costs and inadequate payment make accessing capital more challenging than ever. Over the coming year, Financing the Future will bring together key stakeholders in the industry to quantify capital need and access, identify best practices for capital planning, provide tools for determining capital need, recommend innovative techniques for capital access, and suggest areas for policy change.

This report,How Are Hospitals Financing the Future? The Future of Capital Spending, is based on a meta study, survey, data analysis, and interviews conducted by HFMA and PricewaterhouseCoopers LLP. The study provides a unique analysis of existing data that has not been examined in previous research.

"The hospitals of the future are being built today," said Kelly Barnes, who heads the U.S. healthcare audit practice for PricewaterhouseCoopers. "Patients expect state-of-the-art facilities equipped with the latest medical and information technology. Financing 21st Century medicine will require an investment by all. As our research indicates, each hospital's future capital needs hinge largely on the needs within their own market, and visionary hospitals are facing a formidable challenge in financing those needs."

To order this report, contact HFMA at (800) 252-4362, and press option 2, or visit www.financingthefuture.org. Press inquiries should contact HFMA public relations consultant, Terry Arya, at (800) 252-4362, ext. 362 or via email at tarya@hfma.org; or Deia Lofendo, GE Healthcare Financial Services communications manager, at (312) 441-6169 or deia.lofendo@ge.com.

HFMA is the nation's leading membership organization for more than 32,000 healthcare financial management professionals employed by hospitals, integrated delivery systems, managed care organizations, ambulatory and long-term care facilities, physician practices, accounting and consulting firms, and insurance companies. Members' positions include chief executive officer, chief financial officer, controller, patient accounts manager, accountant, and consultant. HFMA offers educational and professional development opportunities, information on key issues, technical data and networking opportunities, with the ultimate goal being to create a more supportive environment in which members do their business. For more information, visit the Association's Web site at www.hfma.org.

GE Healthcare Financial Services, a unit of GE Commercial Finance, is a provider of capital, financial solutions, and related services for the global healthcare market. With over $13 billion of capital committed to the healthcare industry, GE Healthcare Financial Services offers a full range of capabilities from equipment financing and real estate financing to working capital lending, vendor programs, and practice acquisition financing. With its knowledge of all aspects of healthcare from hospitals and long-term care facilities to physicians' practices and life sciences, GE Healthcare Financial Services works with customers to create tailored financial solutions that help them improve their productivity and profitability. For more information, visit GE Healthcare Financial Services' Web site at .

Media Contacts

Deia Campanelli
GE Healthcare Financial Services
312-441-6169