Deferred maintenance of physical infrastructure and its association to hospital profitability in Washington State

Abstract

Purpose

The aim of this study is to understand health-care facilities’ practice of deferring maintenance and to identify the relationship between deferred maintenance and hospital profitability.

Design/methodology/approach

Financial statements from hospitals in Washington State were analyzed. Differences in building and equipment values were compared to the capital renewal investment benchmark. Then, linear regression analysis was conducted to identify correlations between deferring or sustaining maintenance and a hospital’s profitability.

Findings

The majority of hospitals in Washington State practice deferred maintenance, investing less in annual facility capital renewal than benchmark amounts. Hospitals in deferred and sustained maintenance states do not significantly differ in terms of facility size and plant operating expenses but there is a statistically significant difference in profit margins. Furthermore, a linear relationship exists between the level of investment in facility renewal and overall hospital expenses, revenue and profit.

Practical implications

The findings of this research can be used to support fiscal policies related to maintaining aging health-care facility infrastructure. The findings can also be used to overcome barriers to securing capital budgets that are sufficient to optimize the safety and performance of the built environment.

Originality/value

Hospitals in a state of deferred maintenance return higher profits than do hospitals in a state of sustained maintenance. Nevertheless, hospital spending on deferred maintenance backlog reduction generates a positive return on investment. While hospitals may achieve higher returns, in the short term, by spending less on facility capital renewal and focusing instead on higher-revenue-generating opportunities, additional research in necessary to understand the long-term costs of deferring facility infrastructure repairs and replacement.