By Jeff Niederhausen
An effective CFO considers budgeting to be a four-season, full-contact sport. You can’t sit on the sidelines and watch as others work their positions and the game unfolds. You need to be an active player to ensure you don’t have a big loss on your hands at the end of the day – or, in this case, the year.
As any good numbers person knows, the budget process must incorporate all costs for day-to-day operations, as well as those big-ticket purchases funded through the capital budget. Putting the right amount of money in the right parts of your Healthcare Technology Management (HTM) budget can be the difference between an effective, cost-efficient program – and one that’s a financial drain and not delivering on expectations.
In this post, we’ll focus on how to best manage and monitor your annual operations budget, as capital planning requires a different review and approval process. So, what goes into your HTM program’s yearly budget? Start with your biomed salaries, along with their benefits, training and related travel. Layer in parts and supplies to keep medical technology running, plus an extra budget line for paying for parts and labor through any outside service contracts. Finally, don’t overlook what your people need to do their job, including laptops, testing equipment, and even pens and papers. There’s a lot to consider.
Determine How Much Insight You Need
Your budget and how you track it each month can be as detailed as you want. Personally, my budget for a TKA client runs some two dozen tabs in an Excel file. I want to be able to easily drill down and see how spending for our daily work is trending against what is allocated for the entire year. You want enough data to quickly pinpoint variances and inform your questions as you investigate further.
If you outsource your HTM, you might only have a single budget line item – but you should expect your partner to quickly deliver granular data on request. For an in-house program, we recommend that you set up a separate cost center within your facility’s overall budget, with a breakdown for expense accounts for each critical item. No matter which scenario reflects your hospital, keep all HTM financials under that program – don’t increase your risk by not understanding your total cost and breaking up expenses across multiple departments. A good industry benchmark is that your HTM expenses should be no more than 2 percent of your overall facility expenses.
Keeping HTM costs together ensures the biomed team – the people you pay to take care of your equipment – is invested in managing its budget soundly. They rightly are responsible for controlling those costs, not the providers, who should focus solely on patients as opposed to getting a piece of equipment fixed. It’s better to include your physicians in capital planning discussions, where their voice is essential in providing industry trends and next-stage equipment needs.
Educate Yourself on What Your HTM Team Does
HTM annual budgets don’t stand on their own. They are shaped by how the hospital spends its capital budget. If administrators went on a shopping spree for new, more-sophisticated equipment, you can expect the costs to support that equipment to go up. Over the course of a year, of course, you’ll see some ebbs and flows, such as higher demand for service on respiratory machines during flu season.
Make time to understand what exactly your clinical engineering team does and understand Key Performance Indicators of a good program. Understand things such as the cost-to-value ratio to see if your program meets industry efficiency metrics.
When your HTM team submits its budget request for the next year, get into the weeds to really learn what’s flowing through the program. At TKA, we train our on-site HTM directors on how to develop robust budget proposals that give their CFOs important insights that support the needs and reasons behind those funding requests.
Having open two-way communication then allows everyone to be prepared to take smart action to reverse or even stop an emerging negative trend during the year. As we often say, CFOs never like surprises, but blips happen in our industry and those variances can be validated.
Watch for Trigger Points
CFOs should expect their HTM program leaders to know their budget inside and out, starting with monthly targets to ensure they’re staying inside the lines. But things can and do happen. Your expensive life-saving equipment can break down, causing a major expense that exceeds your monthly set-asides for parts or repairs. Before that ever happens, create a reporting channel where your HTM director can alert senior administrators, including the CFO. Any expense over a pre-agreed-upon dollar value should trigger an email notification including the issue and expected cost to address it.
A busted blood-pressure cuff might not be a big deal, but downtime on a mission-critical device – including imaging machines – impacts other budget lines beyond the HTM program. That also can mean significant lost revenue until that machine is repaired and back supporting your hospital’s patient-care mission.
Believe it or not, sometimes we plan for failures – and it doesn’t happen. That’s the nature of the beast in HTM, where everything is centered around maintenance and repair. If a repair isn’t needed – even if you planned and expected it – you’ll have a nice windfall. Likewise, you’ll have a month heavy with repairs or more calls about broken equipment.
On the flip side, what if your monthly review is indicating that you’re going to have extra money in reserve? In the HTM world, when you simply have fewer calls for repairs in a month, you’re probably going to come in under budget in that space. Don’t jinx yourself, but that doesn’t mean the next month will also be favorable.
I always consider the HTM budget as an annual number, although you should certainly use each month’s financial reporting to adapt the day-to-day work and related spending. In other words, it’s how you end the race that matters, not if you faltered a little bit there or here. If you’re tracking your expenses for the month and the year, your HTM program will see where it’s trending and where it will end.
One budgeting practice we typically advise against is the use-it-or-lose-it methodology. This should never be the case. If budgets are developed based on actual trends of HTM expenses and insights from your capital planning efforts, then the HTM program should be in good hands.
Keep Your Eyes Looking Forward
Your monthly budget management can serve as a barometer that informs your annual capital planning cycle. Escalating maintenance costs can signal that equipment that is at end of life, end of support or requires your problem-solving biomeds to put on their MacGyver thinking caps and find ways to keep it working. You don’t want to through good money at something that is becoming a financial black hole. Instead, these are the items that should be bubbling to the top during capital planning.
Open those conversations with your medical departments and providers early to understand their needs and how they align with the organization’s strategic plan. An unbiased technology assessment can review all your equipment and rank your hospital’s needs. Are there plans for a new outpatient surgical facility or cancer infusion center in your network? Is there a backlog of getting patients in for certain diagnostic testing because your capacity is limited? That information helps you prioritize your capital spending. All your technology must be on an equal playing field, and an integrated approach ensures you spend your money where your greatest needs are – and don’t get sidetracked by shiny objects that are nice to have, but leave your hospital falling short on its mission.
Solid budget management starts with developing the resources to be able to track spending across each core hospital department or function, as well as ensuring you’ve captured all core expenses within that budget line. TKA can help CFOs better track their HTM program’s efficiency and effectiveness by developing a tailored budget approach. Download our Healthcare Technology Budget Tracker worksheet as the first step towards better budget management.
At TKA, we do it better, make it easier, and deliver more to maximize your results and give you a competitive edge.
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