The Capital Budgeting Process of Healthcare Organizations: A Review of Surveys

Abstract

Several surveys have been administered over the last 40 plus years to learn about capital budgeting practices of healthcare organizations. In this report, we analyze and synthesize these surveys in a four-stage framework of the capital budgeting process: identification, development, selections, and post-audit. We examine three issues in particular: (1) efficiency of for-profit hospitals relative to not-for-profit hospitals, (2) capital budgeting practices of the healthcare industry vis-à-vis other industries, and (3) effects of healthcare mergers and acquisitions on capital budgeting decisions. We found indirect evidence that for-profit hospitals exhibited greater efficiency than not-for-profit hospitals in recent years. The acquisition of not-for-profits by for-profits is credited as the primary reason for growth of multihospital systems; these acquisitions may have contributed to the more efficient capital budgeting practices. One unique attribute of healthcare is the dominant role of physicians in almost all aspects of the capital budgeting process. In agreement with some researchers, we conclude that the disproportionate influence of physicians is likely to impede efficient decision making in capital budgeting, especially for nonprofit organizations.