Super Committee's Failure Will Affect Capital Planning
Last week Standard & Poor's and Moody's affirmed their ratings of the United States' credit, but that can change at any time. Even without a credit downgrade, the committee's indecision could still result in interest rate increases, making it costlier for organizations to borrow money. Moreover, the heated and continual partisan rhetoric over the deficit creates a general economic anxiety which tends to cause financial leaders to pull back on capital spending projects.
For at least the last five years, healthcare CFOs have deferred large capital spend projects in an effort to reduce organizational debt. At many hospitals and health systems, the bare minimum of capital projects has been undertaken, with much of the capital going to technology, according to a 2011 HealthLeaders survey. Perez and LaBonte agree that the trend in capital spending for IT projects is likely to continue, but little other investment will likely be made over the next two years.
"We've been much more conservative with our capital project plans, and we try to fund them through donations, operations, or our own investments. Having debt makes you less flexible for the future, and right now with all the uncertainty, we need the flexibility to change when something comes our way," LaBonte says.
However, as equipment and facilities continue to age, could more delays jeopardize the overarching healthcare goal of improving features that impact patient quality of care?
"Hopefully organizations are prioritizing where they need to invest in order to achieve quality care," says LaBonte. "[But] organizations may have to be willing to put up with some risk in order to be very careful with capital planning."
Perez says secondary capital projects, such as adding another server or upgrading a boiler, are most likely to be put on hold. The need to optimize existing assets may spark a renewed focus on efficiency, he says.
"This becomes a re-engineering mission at the organization. You have to improve the efficiency of your existing assets—your people and your equipment. There are smart ways to improve operations and a lot of strategies available for organizations to use without having a massive infusion of capital," he says.
As the economic upheaval continues, it doesn't look like the coming year will bring opportunities for CFOs to loosen purse strings to upgrade aging facilities and equipment. Hope for the best, but anticipate the worst—that's what LaBonte is doing.
"We've been much more conservative with our capital project planning… and I think that's going to continue," she says. "I don't foresee any changes in the economy next year. CFOs are cautious with our plans." Caution is a good watchword for healthcare financial leaders heading into 2012.
Karen Minich-Pourshadi is a Senior Editor with HealthLeaders Media.
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