Healthcare has a capital problem that has nothing to do with the amount of capital. Health systems are good at raising money and good at spending it. What breaks down is the middle: the long, quiet stretch between a board approving a project and an asset showing up on the balance sheet with a defensible cost, a defensible life, and a defensible in-service date.

That stretch is Construction in Progress, and in healthcare it is longer, wider, and more populated than almost anywhere else.

Why healthcare CIP is structurally harder

A retailer building 40 stores is running 40 versions of one project. A hospital system is running an ED expansion, a surgical robot install, an EHR rollout, a parking deck, three clinic build-outs, and a chiller replacement — simultaneously, under different project managers, funded from different pools, on different timelines.

  • Multi-year duration. A tower takes four years. The people who opened the project code are frequently not the people who close it, and the institutional memory of what that code was for leaves with them.
  • Mixed asset classes in one project. A single renovation produces building improvements, fixed equipment, moveable equipment, and software. They carry different lives and, for tax, wildly different treatment. Booked as one lump, that distinction is gone forever.
  • Distributed decision-making. Facilities, biomed, IT, and supply chain all commission capital. Finance sees the invoices, not the decisions behind them.
  • Regulatory and reimbursement pressure. Cost reporting, grant compliance, and tax-exempt bond covenants all reach back into how capital was classified.

None of that is exotic. It is just a lot of surface area, and CIP is where all of it lands at once.

The three failures I see most

1. Projects that never actually close

The most common finding in a healthcare fixed asset review is a CIP balance carrying projects that finished years ago. The building is open. Patients are in it. The costs are still sitting in a suspense account earning no depreciation and telling auditors a story nobody wants to tell.

This is rarely negligence. It happens because nobody owns the trigger. Construction knows when the work is done. Finance knows how to capitalize. Neither has a standing obligation to tell the other, so the handoff depends on someone remembering.

2. Placed-in-service dates set by convenience

Under GAAP, an asset is placed in service when it is ready and available for its intended use — not when the final invoice clears, not at month end, and not when the project manager gets around to signing off. In practice I find in-service dates set to whatever date made the close easy.

The consequence compounds. Depreciation starts in the wrong period, tax lives start in the wrong year, and every subsequent disposal, impairment, or transfer inherits the error.

3. One line item where there should be forty

An imaging suite capitalized as a single $6M asset with a 40-year building life is wrong in three directions at once: the equipment inside it will be replaced in seven years, the tax treatment is understated, and when the equipment is replaced there is no cost basis to retire. The write-off never happens, and the register slowly fills with assets that no longer physically exist.

What actually fixes it

The fix is not a better spreadsheet. It is a small set of controls that make the right behavior the default:

  • Define project lifecycle stages and make them mandatory. Approved, active, substantially complete, closed. Substantial completion is the state that triggers capitalization, and it should be set by the people who can see the work, not by accounting.
  • Write a placed-in-service policy and put a name next to it. One page, with worked examples for the situations that actually recur: phased occupancy, equipment delivered before a space is ready, and software that goes live in waves.
  • Build the componentization decision into project setup, not project close. Deciding how a project will be broken into assets at the start costs an hour. Reconstructing it four years later from invoice PDFs costs weeks. That reconstruction problem is the subject of a separate article on componentization.
  • Put CIP aging in front of leadership monthly. A single report showing every open project by age, with an owner's name attached, resolves more stale CIP than any policy document.
  • Reconcile CIP to the general ledger every month. Not every quarter, and not in a scramble at year end.

The part that is worth saying plainly

Clean CIP is not an accounting nicety. In a health system, the fixed asset register drives depreciation in the cost report, supports the bond covenant calculations, and forms the base for the replacement planning that decides which unit gets renovated in three years. When the register is wrong, those decisions are made on wrong numbers, and nobody in the room knows it.

Getting it right is unglamorous work: stages, dates, ownership, and a monthly rhythm. But it turns a capital program from something finance reacts to into something the organization can actually see.