Non-Profit Hospitals to Keep Expanding Facilities, Buying Technology

Fitch Ratings Co. is predicting not-for-profit hospitals will continue to invest at record levels in facilities in 2008, despite the rising cost of capital. The credit rating company also said investments in information technology will continue this year and beyond as the industry prepares for a more consumer driven health care system.

“Outdated facilities with small multi-patient rooms, disconnected ancillary services, and large central nursing stations are inefficient given the specialization of modern medicine,” Fitch said in its 2008 Outlook on the non-profit hospital and health care system sector. “The need to ensure patient privacy and increased attention to access and operating efficiency, along with infection control initiatives have contributed to the building boom.”

While larger providers have reaped the benefits of low interest rates to replace and modernize their facilities, Fitch said the cost of capital will likely increase over the near to medium term making it difficult for lower rated hospitals to borrow at affordable rates. Nonetheless, competitive forces may compel them to build to maintain their market presence, Fitch said. As a result, Fitch expects small and weaker to seek financing alternatives including mergers.

“Even with favorable debt market access, smaller or fiscally challenged providers may be forced into partnerships to secure necessary capital,” Fitch said in its report.

Meanwhile, information technology will play a big role in hospitals’ initiatives to address quality and the expansion of consumer driven health plans such as health reimbursement accounts and health savings accounts. Hospitals also will rely more on information systems to improve operating efficiencies and share clinical quality indicators with the public.

Fitch said in its report that a recent industry survey showed more than one-third of all hospitals dedicated 3 percent or more of their operating budgets to information technology. And spending on information technology at many hospitals can range from 20 to 30 percent of total capital spending.

Fitch said it views the investments favorably as a means to address quality, consumerism, physician recruitment and retention activities as well as patient safety and satisfaction.