Association of Market, Operational, and Financial Factors with Nonprofit Hospitals' Capital Investment

Abstract

Capital investments in the latest medical equipment and the replacement of aging facilities are critical decisions for sustaining hospitals' financial viability. A recent survey over the period 1997 to 2001 found that hospitals increased their capital expenditures by only 1%. The aim of this study is to gain insight into the changes in market, operational, and financial factors that may have influenced hospital capital investment during this period. The sample consisted of a panel of nonprofit hospitals operating between 1998 and 2001. Capital investment was measured on the basis of capital purchases for buildings, fixtures, and movable equipment during a fiscal year. The results suggest that liquidity—the availability of internal funds—is a critical determinant of capital investment in both urban and rural facilities. From a market perspective, findings indicate that growth in the over-65 population led to increases in the capital investment of rural hospitals. Financially, an increase in cash flow also was strongly related to a change in capital investment among urban facilities. Surprisingly, rural hospitals with aging plants and equipment had declining capital investment.