Private hospitals lead temporary healthcare spending slump

June 01, 2005 |

Healthcare construction spending declined 5% after a big surge last spring. The slowdown was entirely for private facilities.

Hospitals accounted for 70% of the decline. Special-care facilities, such as nursing homes, experienced a 25% drop in construction spending. These changes are consistent with both the level and mix of healthcare spending reported for 2004 by the Health and Human Services Department.

The growth of total healthcare spending dropped from 9.3% in 2002 to 7.4% last year, with proportionally larger declines in hospital receipts, especially private hospitals. Medicaid, Medicare, and private insurers boosted the pressure on private hospitals last year to restrain price increases and minimize elective treatments after they absorbed rapidly rising costs earlier in the decade.

Hospital managers had to trim budgets, including capital spending, and private hospitals had to trim deep enough to maintain margins sufficient to keep their access to capital markets.

The slow period of healthcare construction is expected to end this summer, with a spurt of catch-up building extending well into next year. The turnaround will be primarily driven by the restoration of confidence in financial markets in the prospects of private hospitals. Private hospitals always gain market share in a growing economy, and the new Medicare drug plan will relieve private hospitals of some uninsured customer costs.

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