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Hospitals look to revive capital expenditures

By Diana Manos

After a period of capital budget cuts and spending freezes, hospitals may be seeing a thaw in capital expenditures.

According to a survey in the Premier healthcare alliance's September 2010 Economic Outlook analysis, 69 percent of healthcare supply chain executives said capital budgets for 2010 remained flat or increased compared to 2009.

Overall, 42 percent of respondents suggested an increase in spending vs. 32 percent suggesting a decrease.
For those whose budgets decreased or remained unchanged from last year, approximately 66 percent scaled back projects already in process specific to construction/renovations and the acquisition of clinical and information technology, the report said.

When asked about the top areas in which they are trying to reduce costs in the next 12 months, those surveyed cited commodity pricing (27 percent), physician preference use (25 percent) and pharmaceutical use (19 percent).

"Accounting for 25 percent to 30 percent of a hospital's expense, the supply chain presents a vital opportunity to help offset reimbursement cuts and has increasingly become an area of focus for the C-suite," said Premier Purchasing Partners President Mike Alkire.

According to the report, annual market inflation rates will increase on average between 1 percent and 3.7 percent across categories such as cardiovascular services, facilities, imaging and nursing. Premier's existing contracts, excluding food service and pharmacy, are expected to increase by about 1 percent on average in the next year, Alkire said, lower than overall market increases, which are predicted to be an average of 2.6 percent during this time frame.

According to Wes Champion, senior vice president of Premier Consulting Solutions, hospitals need to identify key areas offering cost savings and revenue enhancement opportunities to offset reimbursement cuts under healthcare reform.

Premier's survey found 73 percent of hospital executives anticipate healthcare reform will have some of the greatest impact on their financial performance over the next year.

A new report by Fitch Ratings could put some of their financial fears at ease, however. Fitch believes that large integrated healthcare delivery systems are better positioned to capitalize on the post-reform environment given their level of information technology investment, physician alignment strategies and focus on care coordination.