Capital Budgeting Process of Healthcare Firms: a Survey of Surveys

How healthcare firms make capital budgeting decisions is an intriguing question principally because about 85% of these firms are not-for-profit operations. Several surveys have been performed over the last forty plus years to learn about capital budgeting practices of these firms. In this paper, we analyze and synthesize these surveys in a four-stage framework of the capital budgeting process—identification, development, selections, and post-audit. The major findings include: medical personnel play a dominant role in the process-----from initiation to acceptance of most projects; the selection is usually considered to be the most difficult stage; the payback period is the leading technique for ranking investment alternatives; and qualitative factors play an important role in capital budgeting decisions. Due to the business environment they operate in, for-profit firms behave more like not-for-profit firms in the healthcare industry than for-profit firms in non-healthcare industries.