Tax receipts boost healthcare market

June 01, 2004 |

Healthcare construction spending has been stuck at a $29.5 billion annual level for 18 months, although spending picked up slightly to $30.2 billion in March. The recent stall is the effect of the delayed impact of the recession on public healthcare spending. Overall, healthcare spending continues to expand 7-8% per year, ensuring expansion of space and renovation needs.

Public expenditures for hospital bills — mostly Medicare and Medicaid — rose 9.1% in 2002, but only 4.4% last year. The slower growth was from reduced reimbursement rates and tighter eligibility restrictions. Those restraints are being eased now because of the sharp rise in tax receipts. The Federal budget deficit estimate was recently cut $100 billion for the current fiscal year; most states are now collecting more taxes than estimated in the current budget.

Public funds for hospital bills will increase about 6% this year and over 6% next year, improving hospital operating margins. This will spur construction, but the surge in spending anticipated to begin by midyear would be largely due to the turnabout in public spending trends that restores confidence that multiyear projects are assured sufficient funds for completion.

In the long-term, however, the rising share of healthcare funds spent for prescription drugs for chronic conditions is a threat to hospital construction, which is largely driven by surgical procedures. The share of spending for prescription drugs is rising 13% per year, double the pace of other healthcare spending. This share will grow further because Congress chose to subsidize consumer drug costs rather than deal with production costs or prescription incidence.

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