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Capital Spending Strategies in an Economic Recovery

John Commins, for HealthLeaders Media, March 9, 2012

This article appears in the February 2012 issue of HealthLeaders magazine.

The weak economy has limited the ability of many healthcare organizations to pursue capital projects; indeed, in our March 2011 Intelligence Report, only 29% of respondents said their capital projects were unaffected by delays or elimination, and fully 42% anticipated difficulty accessing capital. While capital spending is expected to increase in the coming year, what short-term and long-term effects does this sluggish economy have on fulfilling strategic goals, and what factors are influencing where you will focus your capital spending?

Gregory Pagliuzza
CFO, Trinity Regional Health System, Rock Island, IL

Our local balance sheet and income statements are not the prime performers within Iowa Health System [with which Trinity is affiliated]. We get an allocation based on our financial performance and operational needs, requiring us on the capital side to step it up as far as operations go.  I know we are not unique in this, but for us it is a little bit more highlighted because we have some older facilities and we need an upgrade. We also have some other functional issues capitalwise that are causing lots of challenges.

Our oldest facility needs significant upgrades. I think it was opened in 1971, so it is 40 years old and there has not been a significant outlay to modernize it. We know what we would like to do, which is to expand and redo our emergency room and set up a cardiovascular center. We also have a significant investment in behavioral health.

The reality is we are going to have to scale it back. We are in the middle of the process to try to justify it, to at least get the cardiovascular and emergency room overhaul done. That has a $70 million-plus price tag. We can borrow. We are AA rated so we are in an excellent position to go out to the capital market. Access to capital is dependent upon our financial performance. If we don't perform, we may not be able to go out and expand as we would like.

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