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HOSPITALS EYE FUTURE WITH CAUTION; LINC SURVEY SHOWS REDUCED GROWTH IN SPENDING DESPITE INCREASED ACCESS TO CAPITAL

HOSPITALS EYE FUTURE WITH CAUTION; LINC SURVEY SHOWS REDUCED GROWTH IN
 SPENDING DESPITE INCREASED ACCESS TO CAPITAL
 CHICAGO, Nov. 2 /PRNewswire/ -- New evidence from the nation's hospitals suggests that, while access to funding sources has increased overall, the institutions generally are taking a more conservative approach to their capital investments, shying away from expansion projects and leaning toward projects related to their core businesses.
 According to the 1992 LINC Hospital Capital Survey of 290 hospital chief financial officers, the nation's health care facilities are reporting enhanced ability to secure capital compared to recent years. Significantly fewer respondents said their availability of funds was deteriorating (19 percent versus 27.5 percent in 1991) while more reported improved access (27.7 percent versus 22.4 percent in 1991).
 The hospitals, however, appear to be exercising some of the caution apparent in the U.S. economy as a whole. They seem reluctant to take on sizable amounts of additional credit, and spending on most new project categories continued the downward trend of recent years. The most popular projects are those most closely aligned with hospitals' basic mission of acute health care, including renovations (44.5 percent); acute care facilities (20.7 percent); other "miscellaneous" projects, such as the acquisition of medical and other advanced technology equipment (16.6 percent); and medical office buildings (14.1 percent). Projects such as outpatient and diagnostic imaging centers are seeing the largest decreases in popularity. This movement also may be indicative of hospitals' effort to address the issue of rising health care costs.
 While the downturn in spending may be attributed in part to self- imposed restraint, regulatory and market forces also seem to be influencing health care expenditures. In assessing the impact of the new Medicare capital prospective payment system (PPS) on future spending, the majority of respondents predicted little or no impact, yet 46.1 percent predicted a decrease in facilities investments and 36.7 percent predicted a decrease in equipment investments over time. The new regulations will be phased in over a ten-year period.
 REDUCED GROWTH
 "Hospitals generally are striving toward leaner operations, much in the way businesses reorganize to become more financially fit," said Martin E. Zimmerman, chairman of The LINC Group Inc., a health care financial services organization. "After years of explosive growth in the health care industry, the rate of growth is continuing to show signs of leveling. There also would appear to be uncertainty as to how the economic environment will change after the 1992 presidential elections."
 The LINC Group began the annual capital survey in 1989 to help gauge the scope of U.S. hospitals' major project initiatives, capital expenditures, and financing vehicles. The 1992 figures represent the percentage of respondents who have indicated activity in that category.
 PREPARING FOR THE FUTURE
 As hospitals attempt to envision the effects that regulatory measures, societal pressures, and changing capital markets will have on their operations, they are reacting much like the American consumer -- spending less and getting out of debt. Among the four most frequently identified sources of funding, cash reserves continue to be the most popular, though their utilization slid from a peak of 64.5 percent of respondents in 1991 to 56.9 percent in 1992. The majority of institutions (nearly 80 percent) intend to use cash reserves to fund renovations.
 Use of tax-exempt bonds -- consistently ranked second in funding sources for hospitals -- jumped to 27.6 percent in 1991 and were projected to return to more stable levels (23.1 percent) in 1992, with the majority of these funds going toward new outpatient centers and renovation projects. The popularity of equipment leasing as a funding source has remained fairly constant, dropping from 14.1 percent of respondents in 1991 to 13.8 percent in 1992. Leasing is used most frequently in areas where equipment costs are substantial, such as acute care facilities, diagnostic imaging centers, and outpatient services. The fourth most popular funding source, bank/institutional loans, was the only category that saw an increase from 9.7 percent in 1991 to 11.7 percent in 1992. The most popular utilization of bank loans is medical office buildings (nearly 30 percent), as hospitals continue to place a high priority on bringing referring physicians onto their campuses.
 The LINC Hospital Capital Survey added a new section in 1992, as respondents were asked to report on the use of accounts receivable (A/R) financing. Despite the considerable publicity accorded this form of financing for health care applications in recent years, the vast majority (94.5 percent) of respondents reported that they did not use A/R financing. Moreover, nearly 50 percent reported no interest in the financing tool. While it is possible attitudes may change in the future, such a change is not likely to occur unless prevailing costs associated with this financing tool are reduced substantially.
 Nearly 300 top financial executives of acute care hospitals participated, representing approximately 6 percent of the acute, non- federal hospitals in the United States. Responses were geographically diverse, covering 46 states.
 Based in Chicago, The LINC Group of financial services companies is the largest independent lessor in the U.S. Specializing in health care, having leased more than $1 billion in medical equipment.
 -0- 11/2/92
 /CONTACT: Margo Fanning, 312-946-1000, or Larry Macke, 312-988-2359, both for LINC/ CO: LINC Hospital ST: Illinois IN: HEA SU:


LR -- NY021 -- 1470 11/02/92 10:05 EST
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Date:Nov 2, 1992
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