Survey: Hospitals Could Be Set for Equipment-Buying Spree
By VITA REED
Hospitals aren’t just shelling out money to build towers and expand existing buildings. They’re also planning to buy new medical technology.
A recent national survey finds hospitals plan to boost spending, particularly on equipment, by 14% annually in the next five years. That’s a marked increase from 1997 to 2001, when hospitals upped their capital spending by 1% a year.
The survey is welcome news for Orange County’s medical device companies. Many of them, including Toshiba Corp.’s Toshiba America Medical Systems Inc. in Tustin and Johnson & Johnson’s Advanced Sterilization Products in Irvine, sell big-ticket products to hospitals.
The Health Financial Management Assoc-iation, a Chicago-based trade group, sponsored the survey with GE Healthcare Financial Services, a General Electric Co. unit that finances medical investments. Four hundred and sixty hospitals took part.
“We definitely in the last few years have been boosting our spending on technology,” said Ralph Cygan (photo), chief executive of UCI Medical Center in Orange.
UCI Medical Center projects its capital upgrades,not including its $365 million new hospital that’s set to open around 2008,could grow to $44.8 million from fiscal 2004 to 2008. That’s more than double the $22.4 million reported for 1997 to 2001.
The hospital, which is part of the University of California, Irvine, doesn’t expect to pay for its technology buying with state money. Only about $10 million of the facility’s $340 million operating budget last year came from Sacramento, Cygan said.
What state money UCI Medical Center does get goes to support medical education programs, he said.
“The rest of our budget was made the old-fashioned way with seeing patients, billing and collecting from both private insurers as well as government insurers,” Cygan said. “We actually have to make ends meet like any other hospital. We don’t have a state line-item budget for technology.”
California is expected to be one of the states seeing more spending by hospitals, joining Florida, Texas, Arizona and Georgia, according to the survey.
In particular, large teaching hospitals are expected to spend more in a bid to keep and recruit doctors.
“There’s certainly much more demand for capital within a teaching hospital,” said Randy Fuller, a manager with GE Healthcare Financial Services and the survey’s coauthor. “There are certainly significant demands by physicians to stay on the leading edge of technology, which can cause them to invest in new radiology (equipment), new OR suites, the best and the latest equipment.”
A confidentiality pact kept Fuller from confirming if UCI Medical Center took part in the survey.
“The physicians who you’re recruiting to an academic medical center, they expect that they will have the tools at their disposal to do the best they can for their patients,” Cygan said.
UCI Medical Center’s “been aggressive in recruiting a number of specialists to the medical center and with each one of these recruitments, there’s a large appetite for cutting-edge technology,” Cygan said.
Many physicians who practice at the hospital also work on coming up with new uses for imaging, diagnostic testing and other procedures, Cygan said.
Participating hospital executives said there were three primary, and sometimes competing, reasons behind the expected increase in spending:
n Staying ahead of deteriorating assets, including hospital property and medical equipment.
n A need to upgrade technology.
n Increasing patient capacity, which usually goes along with demographic and population growth.
California ranked among the top states when it came to population growth, Fuller said, but was in the middle of the pack when it came to the average age of a hospital at nine to 10 years.
The survey also showed that access to capital might cleave hospitals.
Those with strong balance sheets would be able to raise money by issuing bonds. Those that don’t either would have to look to contributions or other sources, or cut into already tight profits. Figures from the Health Financial Management Association showed that hospitals’ median profit margin is about 2.6%.
Pressure Profit
UCI Medical Center, a not-for-profit, reinvests its net income from operations into the hospital and the UCI’s College of Medicine. Buying equipment and recruiting faculty “puts tremendous pressure” on UCI Medical Center’s margins, according to Cygan.
“The appetite of our faculty is insatiable, as you can imagine,” he said with a laugh.
One issue that wasn’t addressed in the survey is California’s earthquake safety law,a requirement that is expected to cost hospitals around the state billions of dollars.
California’s law was passed after the 1994 Northridge earthquake. It requires all acute-care hospitals in the state to be up and running at least three days after a major earthquake by 2030.
St. Joseph Health System, Hoag Memorial Hospital Presbyterian and Kaiser Permanente are among OC hospitals that are planning major facility upgrades in a bid to meet earthquake standards, as well as keeping up with population and healthcare delivery changes.