Analysis

Drivers of capital expenditure

The main drivers of capital spending are renewing, modernising or upgrading buildings and increasing capacity to meet population pressures. Regional capital spending projections are not entirely driven by changes in population levels or population ageing and pro rata demand for health services, but also by technology, disaster risk management, retaining staff, and so on.

Figure 56: Health capital expenditure by driver

Source: The Ministry of Health, 2009

The functionality of clinical equipment is also a large driver of capital expenditure. Total clinical equipment has a replacement cost of close to $1 billion and a useful life of seven to ten years. This requires an annual investment of over $100 million to ensure the equipment is replaced before it becomes unreliable.

Buildings and plant typically have around a 50-year condition-based life. However, changing models of care can shorten the useful life, creating challenges for optimal asset management. Shorter useful life has yet to lead to widespread adoption of shorter life/lower-cost construction approaches. Different design approaches, such as “loose fit, long life” designs, can be more flexible and adaptable to changing models of care.

Figure 57: Forecast building replacement costs

Source: Ministry of Health, 2009

Consistent with the vision in Part 1, the new business unit being established within the Ministry of Health aims to ensure that infrastructure investment and management is consistent with realistic future health funding expectations and responds dynamically to forecast or unexpected changes in demand by thinking creatively about alternative ways of solving problems or delivering services.