Healthcare still the place to be in construction

Healthcare construction spending dipped in the first quarter of 2003 after five quarters of expanding at a double-digit annual rate. Spending growth is expected to bounce back to a 10% annual pace through the end of 2004. The brief dip was caused by sudden, sharp construction budget cuts. State and local governments are struggling to balance June 2003 FY budgets, while tax revenues are plunging and social welfare costs are soaring. No substitute money is coming from Washington. Several large private hospital chains have experienced unexpected operating losses and credit downgradings, and all hospitals are cutting costs to accommodate lower insurance reimbursements.

Congress may soon boost hospital margins by picking up some of Medicare prescription drug costs, and the FDA may help insurers by switching some drugs from prescription to over-the-counter.

The underlying economics and demographics are ideal for sustained strong growth in facility investment. The population is aging, real incomes are rising, and new technolgies are making older facilities obsolete.