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Investing Capital in Uncertain Times: The Board’s Role

Hospitals have just come off the greatest construction spending spree since the 1950s, when both the post-war economy and the population were booming. Just a year ago, the annual survey by Health Facilities Management and the American Society for Healthcare Engineering prognosticated that “nobody expects the (building) boom to end soon.”1 A total of $41 billion was invested in hospitals and clinics in 2007 and estimates are that $40.7 billion was under construction at the start of the fourth quarter of 2008. If you see a construction crane up in most towns or cities today, you know that you are near a hospital!

That seemingly never-ending boom in hospital-related construction has, as everyone knows, come to a sudden cooling off, if not a grinding halt. The overall credit crisis that eliminated low-cost borrowing options enjoyed by the industry over the past several years, coupled with huge declines in the stock market, a recession threatening at least two lean years, the possibility of healthcare reform, and other uncertainties have caused hospital and health system leaders to step back and reassess their approach to capital allocation and investment in plant, equipment, and information and clinical technology.

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