Healthcare spending grows faster in 2006–07

Healthcare construction spending will increase 10.2% in 2006 and 13.7% in 2007 after a 7.8% gain last year. Spending has been largely unchanged for the last six months following a burst of new starts for large hospital projects last spring and summer. But with the value of construction starts 19.9% higher in January and February than in same period last year, according to Reed Construction Data, healthcare construction activity will rise strongly within a few months.

The construction spending projections are consistent with consensus projections for healthcare services spending. Total private healthcare premium receipts expanded about 12%, and the Medicare/Medicaid budget about 8%, in 2005. Little change is expected in 2006. Hospital construction spending is forecast to grow faster than spending for services next year based on the surge of healthcare starts early in 2006.

Healthcare service spending projections in 2007 and beyond—the constructions funds for 2008 and beyond—depend on the outcome several conflicting trends. There is a downside risk that Congress will cut the annual growth in the Medicare/Medicaid budgets when economic growth slows or if the budget deficit increases due to another expensive security or rebuilding program.

In addition, the automation of clinical and administrative records could cut healthcare costs substantially if medical record privacy issues can be resolved. There is an upside risk that state governments will use some of their growing budget surpluses to significantly boost spending to cover the healthcare costs of the uninsured.