CHICAGO, January 5, 2004 - Growing demands by aging babyboomers, reimbursement pressures, heightened patient expectations, and technical innovations are forcing many hospitals to focus on short-term margins without spending sufficient capital to support their long-term needs. As a result, the quality of nearly half the nation's hospital facilities and their ability to meet future demand for services are in jeopardy.

According to a new report from the Healthcare Financial Management Association (HFMA) in partnership with GE Healthcare Financial Services (with research conducted by HFMA and PricewaterhouseCoopers LLP), hospitals' capital spending on fixed assets (property, plant, and equipment) has been relatively flat in recent years, in contrast to sharply rising demand for hospital services. Findings show that 41 percent of medical institutions are not investing enough capital to keep ahead of asset depreciation, posing a potential threat to the continued health and vitality of many providers.

HFMA President and CEO, Richard L. Clarke, FHFMA, said, "Hospitals are at a crossroads. One path is defined by inadequate capital investment leading to a struggle to remain viable in the future. The other path involves farsighted planning yielding capital investments designed to take advantage of future growth opportunities. Taking the right path is a formidable task, especially for financially challenged hospitals. This Financing the Future report offers knowledge and tools needed to take the path to future success."

According to the first Financing the Future report - How Are Hospitals Financing the Future? Access to Capital in Health Care Today, the deteriorating financial condition of hospitals is limiting their sources of capital. The number of hospitals with limited capital access has grown significantly in recent years (19% in 2001, up from 11% in 1997). This trend, coupled with the current report's findings of flat and often inadequate capital spending, points to potential threats for some hospitals. Those that struggle with their financial health are less creditworthy, decreasingly able to invest in the future and, as a result, may find their financial health diminishing further.

"Rising demands for services and increasing requirements for capital investments are placing increasing pressure on hospitals to re-examine their approach to capital spending," said Rick Wolfert, president and CEO of GE Healthcare Financial Services. "These findings demonstrate the critical need for hospitals to understand the variety of financing options available and the need to implement a systematic capital planning process for short- and long-term growth."

Between 1997 and 2001, capital spending for fixed assets, such as buildings or equipment, increased approximately 1 percent from $23 billion to $23.7 billion. This limited growth was far outstripped by demand for inpatient and outpatient services, which increased by 7.7 and 19.6 percent respectively, during the same time period. Those hospitals with the highest spending were large, urban, nonprofit facilities. For example:

• Between 1997 and 2001, the largest hospitals (400+ beds) spent nearly 63 percent more capital on a total per-bed basis than the smallest hospitals (less than 100 beds).

• Between 1997 and 2001, urban hospitals spent 32 percent more capital on a total per-bed basis than rural hospitals.

• Between 1997 and 2001, total per-bed capital spending for hospitals defined as having broad access to capital was more than 13 percent higher than for hospitals defined as having limited access to capital

Nearly 60 percent of hospitals appear to be spending enough capital to stay ahead of depreciation. These facilities tend to be larger, rural, not-for-profit hospitals that on average spend more than three times as much as their depreciation. However, a significant group (41 percent) of hospitals are spending only 64 percent of their annual depreciation on capital. This disparity has created a divide among the haves and the have nots and has likely diminished some hospitals' ability to build or renovate facilities, expand products and services, or maintain profitable growth.

Research also suggests a geographical disparity among hospitals' ability to meet capital needs. For example, some hospitals in Hawaii, New Mexico, North Dakota, Florida, and New Jersey seem to be more challenged in keeping up with depreciation than hospitals in Idaho, South Dakota, Oregon, Iowa, and Minnesota. This trend may be due, in part, to the regulated, high cost, low margin, competitive landscape in each state, and reaffirms that hospitals and health systems must continue to find access to capital to ensure the growth of the healthcare industry and the future quality of care across the nation.

One key way hospitals can ensure effective capital spending in challenging economic times is through a systematic capital planning process that includes: 1) a focus on improved operations; 2) a clear link between strategic initiatives and capital spending; and 3) a capital-allocation process that objectively measures the future benefits from each investment. The Financing the Future series will offer specific guidance in effective capital planning; report five in the series will focus exclusively on this subject.

The purpose of Financing the Future is to give healthcare professionals the information, strategies and tools they need to seize the opportunities presented by increasing demand for services as well as innovations in technology and care delivery. Seizing these opportunities requires capital, yet rising costs and inadequate payment make accessing capital more challenging than ever. Over the coming year, Financing the Future will bring together key stakeholders in the industry to quantify capital need and access, identify best practices for capital planning, provide tools for determining capital need, recommend innovative techniques for capital access, and suggest areas for policy change.

This report, How Are Hospitals Financing the Future? Capital Spending in Health Care Today, is based on a meta study conducted by HFMA and PricewaterhouseCoopers LLP that provides a unique analysis of existing data that has not been examined in previous research. "Our research should trigger the leadership of both hospitals and payers to look at the decisions they're making today on capital allocation and reimbursement. Those decisions affect how patient care will be delivered in the future," said Gerard Bielak, a partner who leads the healthcare finance practice for PricewaterhouseCoopers LLP. "Healthcare institutions are facing some of the most critical investment decisions of any industry today as they prepare to treat an aging population in aging physical plants and deal with continuously changing technology in both the clinical and back office needs of their delivery systems."

For more information, or to order this report or the report series, contact HFMA at (800) 252-4362, and press option 2, or visit www.financingthefuture.org. Press inquiries should contact HFMA public relations consultant, Terry Arya, at (800) 252-4362, ext. 362 or via email at tarya@hfma.org; or Deia Lofendo, GE Healthcare Financial Services communications manager, at (312) 441-6169 or deia.lofendo@ge.com.

HFMA is the nation's leading membership organization for more than 32,000 healthcare financial management professionals employed by hospitals, integrated delivery systems, managed care organizations, ambulatory and long-term care facilities, physician practices, accounting and consulting firms, and insurance companies. Members' positions include chief executive officer, chief financial officer, controller, patient accounts manager, accountant, and consultant. HFMA offers educational and professional development opportunities, information on key issues, technical data and networking opportunities, with the ultimate goal being to create a more supportive environment in which members do their business. For more information, visit the Association's Web site at www.hfma.org.

GE Healthcare Financial Services, a unit of GE Commercial Finance, is a provider of capital, financial solutions, and related services for the global healthcare market. With $11 billion in assets, GE Healthcare Financial Services offers a full range of financing capabilities from equipment leasing and real estate financing to working capital lending, vendor programs and acquisition financing. With its knowledge of the healthcare industry, GE Healthcare Financial Services works with customers to create tailored financial solutions that help them improve their productivity and profitability. GE Healthcare Financial Services' Web site is .

Media Contacts

Deia Campanelli
GE Healthcare Financial Services
312-441-6169