Health care construction in the United States was running at a seasonally adjusted annual rate of about $75.8 billion in August 2026, down from $78.1 billion a year earlier.[1] A major project typically reaches approval through a business case: a demand forecast, a staffing plan, an opening date and a return. Those assumptions can resurface later in a different document. When a system buys a physician group to support a new facility, sells an interest in a recently built joint venture, or values a service line for a transfer, the forecast that justified the capital can quietly become the forecast that supports the value, even though the two documents answer different questions.
Spending creates cost, not value
A capital budget records what the owner intends to spend. Value is what the project's future cash flows are worth today. In an income approach, capital expenditure is a deduction from cash flow, and a project adds value only when the cash flows it produces are worth more than the capital consumed to produce them. An approved $200 million budget is evidence of commitment, not of value. If the valuation of a service line or a joint venture leans on the size of the investment, it has borrowed the capital plan's premise rather than tested it.
Trace one forecast through the building
Take the demand forecast and follow it. Forecast volume becomes revenue only when there is staffed capacity to deliver it, and staffed capacity is usually less than designed capacity in the early years. Revenue begins when the facility opens, while much of the fixed cost, including leases, debt service and core staff, begins on a schedule of its own. Each step between the forecast and the cash flow is a place where the value can move while the capital budget does not.
A hypothetical shows the size of the effect. A system plans an outpatient surgical expansion expected to produce $10 million of annual operating cash flow once stabilized, with stabilization assumed eighteen months after opening. Now assume the opening slips nine months and staffing supports 70 percent of designed capacity for the first eighteen months rather than the planned ramp. At a 10 percent discount rate, moving a stream of cash flows nine months later reduces its present value by about 7 percent (the discount factor for three quarters of a year, 1 divided by 1.10 raised to the 0.75 power, is roughly 0.93), before counting a single dollar of lost ramp-period cash flow or the carrying cost of a finished building that is not yet open. Add the staffing constraint, and the first eighteen months produce a fraction of the forecast while fixed costs run in full. The capital budget is unchanged throughout, and the value is lower at every step.
The assumptions are often on the public record
In states with certificate of need (CON) review, the owner has already made project representations to a regulator. North Carolina's review criteria, for example, require an applicant to demonstrate the population's need for the proposed service, to provide financial and operational projections showing the availability of funds and financial feasibility, and to show evidence of available resources including health manpower.[2] When a CON filing contains volume, staffing or timing assumptions, it creates a record that a later valuation can be compared against. If the valuation assumes more volume than the application did, or a faster ramp, the difference needs an explanation.
Tax-exempt bond disclosures, public board materials and the capital approval itself can provide additional comparison points. A valuation with materially different assumptions should explain the differences; adjusting the discount rate does not substitute for reconciling the operating forecast.
Where fair market value narrows the forecast further
When the project involves physicians, as a joint venture, an acquisition or a co-management arrangement, the applicable valuation framework may narrow which benefits can support the transaction price. Under the Stark regulations, fair market value is the value in an arm's-length transaction consistent with general market value. For an asset, general market value is the price produced by bona fide bargaining between a well-informed buyer and seller that are not otherwise in a position to generate business for each other.[3]
A hospital capital case may include downstream system benefits, but a physician-transaction valuation should not simply carry those benefits into the value of the physicians' interest. That does not mean every downstream cash flow is mechanically excluded in every structure. It means the analysis must distinguish cash flows a market participant could support from value that depends on referrals or other business generated between the parties. The forecast should be reconciled and, where necessary, rebuilt using supportable relationship-independent assumptions before it supports a price paid to or received from physicians.
The question for the finance committee is the same at both moments, before the capital is approved and again before the transaction is signed: which cash flows is this number built on, and does the staffed, scheduled, market-participant version of the forecast still support it?
Sources & Notes
- U.S. Census Bureau, "Monthly Construction Spending, August 2026," released October 1, 2026, Table 1, health care construction at seasonally adjusted annual rates ($75,787 million for August 2026; $78,100 million for August 2025), https://www.census.gov/construction/c30/pdf/release.pdf.← 1
- N.C. Gen. Stat. § 131E-183, "Review criteria," criteria (3), (5) and (7), https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/BySection/Chapter_131E/GS_131E-183.html.← 1
- 42 C.F.R. § 411.351, definitions of "fair market value" and "general market value," https://www.ecfr.gov/current/title-42/chapter-IV/subchapter-B/part-411/subpart-J/section-411.351 (eCFR current as of October 22, 2026).← 1