Balancing the Art and Science of Capital Planning
By Francesco Petruzzella
When hospitals talk about big-ticket purchases, data and anecdotal insight must to be at the center of those conversations.
Too often, hospitals go into their annual strategic capital planning process without the solid information they need to decide smartly where to invest their limited funds. After all, this chunk of your financial portfolio pays for expensive things, such as medical technology and brick-and-mortar facilities. Since capital funds always run out before covering everything on the list, a CFO must be proactive and strategic in allocating these limited dollars where they’re most needed. Every department will come to you with a deep wish list, but will each bring solid documentation to plea the case?
How Your Healthcare Technology Management (HTM) Team Can Help
When your HTM program is working at optimal levels, your team can present up-to-the-minute information on the health of its daily operation and all the equipment it maintains. The more buttoned-up the program is, the more precisely it can recommend where capital dollars should be spent with clinical engineering. It’s a long-term play: How you invest these dollars will bring your strategic vision to life, as well as influence your public reputation with the community you serve.
Still, like the practice of medicine itself, there’s a necessary balance of art and science to soundly spend millions on cutting-edge technology, one that’s grounded in supporting your providers to deliver top-quality patient care. You need hard data about the health of your current inventory, which is a starting point for knowing what’s in satisfactory shape to support your mission in the year ahead and what’s on the verge of being obsolete. You also need to determine how much your trust the skills of your biomeds to keep things working for the next 365 days and gauging where your dollars will go to their ideal use over the next five or so years.
An effective capital planning process for your HTM program starts with understanding three critical things: The age of your equipment, your annual support costs, and what technology is available for replacements. When augmented with insight from your providers and administrators, this process can help you identify the right equipment that aligns with the hospital’s strategic vision.
In reality, it’s never quite that simple, but a comprehensive process shouldn’t cause you to lose sleep every night until you’re finished. Having been through numerous capital planning efforts at different hospitals, I wanted to share a few tactics that make capital planning a strategic, informed and less-stressful experience for everyone – including, most importantly, your hospital and patients.
- Know the useful life of your equipment.
As a best practice, twice a year, I will share information on the useful life of each “mission-critical” device. Each report – searchable by department and other factors – details the age of the equipment and its expected financial lifespan, based on American Hospital Association recommendations. An effective HTM program is continually documenting this in its Computerized Maintenance Management System. A twice-yearly look at this data will help you stay informed on the value of your equipment and how it’s being used. Bring the data into a spreadsheet, and you can drill down by departments, equipment types and more. Through these-yearly touchpoints, it’s important to understand the different life stages of your equipment. Some might be reaching End of Life, when the manufacturer notifies you that it will no longer support that product. End of Serviceability is when technicians can extend that device’s life, sometimes to two or three times longer than when the manufacturer end support. So, do you invest this year in a major purchase and replace that item? Or do you – after studying maintenance records and asking your HTM team for input – decide that you can take the less-costly path right now and trust your biomeds with alternative service? TKA has developed a worksheet to help you capture information for each mission-critical device before you start your capital planning process.
- Maintain an ongoing dialogue throughout the year with key stakeholders.
Monthly meetings with your HTM department directors will keep you informed on equipment status, emerging trends with how the equipment is performing and being used. During the pandemic, many hospitals have paused their regular capital equipment committees, but be sure to engage with those members as well. And if you’re working with an external HTM partner, ask your provider to source this information from other hospitals using those devices to round out your data.
- Set your prioritization schedule.
In TKA’s experience, a hospital must replace about a quarter of its overall inventory every year. Taking time before you’re deep in capital planning to establish foundational standards will align your providers, administrators and even HTM team on when to spend. Those factors might include the age of equipment, maintenance costs and uptime; you decide collaboratively which metrics are most important to your hospital. This also helps you map out long-term capital planning and means you aren’t reacting each year to the squeakiest wheel.
- Engage the front-line in the conversation during capital planning season.
Your physicians, nurses and other providers are the ones using this life-saving equipment every day. What else do they need to improve patient care? Some will be pretty vocal about what they want, but your responsibility is always to invest in what the hospital needs. Again, be sure to link capital planning with your hospital’s strategic vision. If your healthcare network will open additional ambulatory surgical centers next year, your budget might require more robotic operating devices than bedside ventilators.
- Understand where the technology is going.
In 2020, technology will overtake the traditional leader of labor costs as the biggest part of your budget. Your HTM team should take the lead in keeping up with clinical engineering innovations – 5G, artificial intelligence and other tools – that bring greater sophistication to diagnostics and treatment. It’s fair to say that those higher-level devices often come with higher price tags. If you have an immediate need, you certainly will buy the current model. If you find your providers are itching for the next exciting diagnostic tool, consider if it’s better to wait to stroke that check. You need to involve both the providers and the biomeds in a robust due diligence process to determine the right technology at the right moment to serve your hospital’s patient needs.
- Take bias out of your process.
Ask your HTM program – or an external partner, like TKA – to conduct a technology assessment, which reviews and prioritizes the medical equipment needs of your organization. This takes departmental politics out of your replacement practices. This assessment scores each device against specific criteria, including end of life support, need, age, parts access, and more. The outcome is an objective ranking that helps you determine your spending.
The biggest hurdle in the capital planning process is that everyone wants a piece of this pot, but there’s never enough to go around. This year, capital budgets are even tighter, a reaction to hospitals diverting funds to support COVID-19 care. With equipment in your capital budget starting at $5,000 for a catheter and up to $1.2 million or specialized imaging devices, you need engagement across the hospital to align spending to directly support the organization’s mission.
TKA’s strategic approach positions a hospital to be constantly collecting important information that will influence and shape effective capital planning. Contact us for recommendations on the best practices to apply to your capital planning process. A great place to start is with an external technology assessment, which delivers an objective report that helps you smartly develop the best capital spending strategy for your hospital. Download our template to get started.
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