New Priorities for Hospitals?

Supplying fresh details on the capital crunch that hospitals are facing today, the American Hospital Association said that an increasing number of hospitals are stopping or postponing “shovel-ready projects” that would improve community health care, increase jobs, and support local economies. While the AHA survey was clearly aimed at securing for hospitals a bigger chunk of the billions that the young Obama Administration plans to spend on the national infrastructure, it does portray a worrisome trend.

Nearly half of the hospitals surveyed have postponed capital spending that was slated to begin within the next six months, and many have stopped current projects. Six of 10 hospitals have delayed clinical and information technology initiatives.

Among the planned projects put on hold are these:

• Expansion of emergency or urgent-care departments (43 percent)
• Inpatient medical and surgical care facilities (65 percent)
• Inpatient behavior health facilities (13 percent)

The AHA report also broke down the financial areas where hospitals are having difficulty in securing capital. Leading the hit parade were taxable bonds: 34 percent of the respondents said they’d become significantly harder to sell, and 22 percent said they couldn’t access that market. Tax-exempt bonds were nearly as bad, with 45 percent of hospitals finding them hard to sell and 12 percent not being able to sell them at all. The equity and venture capital markets—unavailable to not-for-profits at any time—were harder or impossible to access for 50 percent of respondents. The comparable numbers for philanthropy and banks/financial service companies were 42 percent and 33 percent, respectively.

Another new survey, from the Healthcare Financial Management Association, also showed that capital is becoming more expensive and harder to obtain. Nearly 80 percent of responding hospitals said they were cutting back on information and medical technology spending, and 72 percent were postponing construction projects.

Meanwhile, a report from the Bureau of Labor Statistics showed that health care was the sole bright spot in the employment picture. According to BLS, health care added 31,600 positions in December 2008—a month in which the overall American workforce shrank by 534,000 jobs. For all of 2008, the health care workforce grew by 2.8 percent. In December, hospitals added 11,900 workers, and physician offices increase their labor pool by 5,600 employees.

One area where health care can’t keep up with the demand for labor, of course, is in nursing. BLS predicted that the longstanding shortage will worsen in the next seven years. About 233,000 new nursing jobs per year will open up, some of them requiring specific kinds of inpatient expertise. But only 200,000 candidates passed the nursing exam last year, and thousands of nurses leave the profession each year.

When you juxtapose these two sets of facts—the hospital capital crunch and the growing need for labor—it appears that hospitals may be shifting some of their cash flow from capital projects to human resources. After all, hospitals have never borrowed or obtained investments to cover all their capital needs; they don’t have to, because they have a steady flow of money coming in. Some hospitals, to be sure, need all of that cash to cover expenses, and about 50 percent of institutions are currently losing money. But if solvent hospitals are hiring more and spending less on capital projects, it may show they have a new set of priorities. If so, those priorities will grow in importance as more people become insured and demand health care because of health-care reforms.