John Evanoo
Debbie Cameron

By adopting capital equipment strategic planning, you can move from an opinion-based to a data-driven approach to setting priorities for the replacement of high-cost capital equipment.


At a Glance

  • Capital equipment strategic planning (CESP) is a data-driven method that can be used for evaluating a hospital's existing equipment in light of its business goals and budget to develop an unbiased multiyear plan for replacing aging equipment.
  • The foundation for CESP is a rigorous technology assessment of all clinical equipment items that represent a significant cost to replace (above a certain threshold).
  • Armed with the data gleaned from this technology assessment, hospital executives can begin to make informed decisions about where to allocate capital spending to replace mission-critical clinical equipment.

As the nation recovers from the recent economic crisis, a significant challenge lies ahead for many hospital executives as they begin to revisit their organizations' capital equipment needs. During the crisis, most hospitals were holding off from replacing clinical equipment if at all possible as a way to reduce capital spending. Now, as the economy struggles to gain some forward momentum and capital dollars become available, many hospitals face a backlog of unfulfilled needs and wants for clinical equipment purchases. This backlog means setting priorities among requests to replace equipment has become more difficult than ever, especially given that every hospital department can be expected to battle vigorously for its wish list to be included in the capital budget.

Sound purchasing decisions are essential to a hospital's economic health and the welfare of its patients. Yet it is no simple task to sort through competing demands for capital dollars and deal with the sense of urgency to replace aging equipment. Hospital executives need to exercise sound judgment in determining which pieces of equipment should be replaced first, which should be scheduled for replacement in two years, and which can wait for replacement in five years. Too often, however, these executives do not apply the most effective processes toward setting priorities among competing capital equipment replacement requests.

In many instances, hospital leaders rely primarily on subjective input-typically from committee consensus, physician demands, and vendor
recommendations-to help guide their equipment replacement decisions. Although it is important that these voices be heard, if hospitals' C-suite executives rely solely on such input, their approach will become purely opinion-based, and to the extent that it is so, it will be compromised. Such an approach does not afford C-suite executives important information about options or risks needed to gauge the effectiveness of the replacement decisions being proposed. As a result, the executives may be left reasonably questioning whether the items requested for replacement are the ones for which there is truly the greatest need.

CESP: A Data-Driven Solution

Hospitals require a rational, data-driven approach to determining when clinical equipment should be replaced. Capital equipment strategic planning (CESP) is such an approach. It is an objective method for evaluating existing equipment, examining the findings in the context of the hospital's business goals and budget, and then developing an unbiased multiyear plan for replacing aging equipment. An added advantage of CESP is that it can be integrated into any existing capital planning process.

CESP offers many advantages over the typical opinion-based model. It provides a dashboard of actionable information, visibility to opportunity and risk, and long-term strategic continuity. It also makes the status of all clinical equipment in the facility visible and available when needed. Most important, it provides a replacement plan based on verifiable data, not opinion, and thereby helps mitigate the risk associated with older equipment. These data are obtained by means of a technology assessment process described below.

Technology Assessment

A technology assessment of clinical equipment provides the foundation for CESP. Most hospitals will need to update this assessment annually, but several factors will determine the optimal update schedule. For instance, some hospitals may require only biannual updates if the utilization or status ratings indicate a relatively slow equipment turnover. On the other hand, a hospital in the midst of new construction or renovation may require CESP reviews and updates monthly or quarterly to ensure the project stays on budget.

A hospital's supply chain or clinical engineering usually are charged with leading the CESP process in order to coordinate the process with the annual financial budgeting milestones of the hospital.

Gathering the data for the technology assessment is the first step in CESP. This step requires participation from several areas, including user departments, accounting, clinical engineering, and executive management. Data are typically gathered via interviews with the key constituencies. The involvement of clinicians, biomedical engineers, and senior management during the interview process is an excellent way to combine various knowledge, experience, and practicality in determining the condition of the hospital's medical equipment. The interview process also is a good way to identify equipment-related issues that are commonly of concern to staff.  The information should then be analyzed and presented in an easy-to-use format.

Gathering the data can take several months initially, depending on the size and complexity of the hospital. Once collected, however, the data can be updated quickly and easily.

A threshold should be established for items to be included in the technology assessment to make the time requirements more manageable for the participants. A point of diminishing returns is reached quickly for smaller equipment items, such as patient scales, thermometers, BP cuffs, and diagnostic sets. The threshold can be based, for instance, on estimated replacement cost above a predetermined value, or the assessments can be limited to departments with a substantial amount of expensive equipment. An appropriate threshold ensures that the process identifies and focuses only on equipment items that pose the most risk. Limiting the data in this way also offers decision makers the added advantage of a reduced problem set.

The technology assessment should provide a snapshot of the efficacy of each clinical device by formulating data from:

  • Maintenance history
  • Risk associated with ongoing/extended use
  • Remaining device support and serviceability
  • Level of technology sophistication
  • Clinical utilization and impact
  • Industry benchmark data

Several indicators in each category should be rated in the assessment, the complexity and refinement of which depend upon the quality of the data available within the hospital's various databases. It is important to maintain a balance among the rating scales of each area to keep the data neutral in the overall replacement scoring methodology.  For instance, if the data being used for rating the equipment are primarily maintenance historical information gleaned from the clinical engineering database, the ratings may not reflect the real-world utilization or the clinical need the equipment is meant to fulfill. Stellar uptime and low maintenance cost, as reported by the clinical engineering database, do not necessarily indicate a device's excellent performance; rather, they may actually be indicators of a wasted asset that is not utilized because it does not meet the clinical need.

Ratings also should be based on as many data elements as possible, as the strength and credibility of the business case for equipment replacement will correlate with the amount of empirical data used in the decision model.

In short, the data derived from a balanced technology assessment can provide the basis for identifying the priority for replacement and the risk associated with each equipment item regardless of equipment modality or clinical service line. This overall view provides the transparency to the "real world" equipment inventory status needed to establish appropriate contingency levels. It can be used to turn what would otherwise be a catastrophic equipment failure into a manageable event.

The Dashboard and Status Reports

The CESP dashboard ideally will provide several views of the equipment base, including overall rating information and a financial  planning/scenario modeling platform. All individual rating elements as well as the overall replacement rating score should be shown, and color coding them can facilitate easy identification. Other useful features include timeframe and budgeting parameters that are adjustable for forecasting and scenario modeling, and the ability to apply filtering to any criteria to allow data to be viewed from various viewpoints (e.g., facility, department, modality, replacement cost range, and equipment age). These features enable the user to quickly and easily move from specific item or location detail to an enterprisewide view of equipment rating information.

The Equipment Rating Process

The CESP process starts with determining the analysis parameters and thresholds, such as what level of equipment will be analyzed and how equipment will be counted (e.g., component, system, or unit).

Once determined, these criteria form the framework for how all the equipment in the inventory will be classified. The equipment inventory is then segregated into the various classifications. This step narrows the focus of the analysis and dramatically improves the efficiency of the process.

Data are then collected for the equipment meeting the criteria for evaluation. The rating data are compiled from a variety of sources, including industry benchmarks, database history, and clinician input.

Once collected, the data are analyzed and the ratings applied for each inventory device included in the CESP. This step provides the high-level overview of the performance of each device as well as the priority ranking for replacement.

Forecasted over time, this information provides two big benefits to the equipment replacement planning process: continuity for bridging changes in personnel and managed expectations because managers know how their equipment stacks up for replacement within the organization.

There is usually a shift in the capital equipment replacement planning dynamic as information becomes available to forecast trends and outcomes. Also, the transparency afforded by the data-driven model allows a higher level of scrutiny of equipment replacement rationale and more confidence in the replacement
decisions.

The last step in the process is to use the information provided by the CESP to build the capital budget. The CESP rating model reduces the
problem set for administrators as the capital budget can be categorized as follows:

  • CESP replacement
  • Non-CESP replacement
  • Net new, clinical equipment purchases

The organization can easily monitor the balance of efforts to address existing risk versus expansion as it strives to meet its strategic objectives.

Integration into the Strategic Plan

Once a hospital's equipment has been listed, assessed, and ranked for replacement, the CESP replacement priority can be integrated into the hospital's strategic plan. The information-rich CESP platform can facilitate scenario modeling, based on a three- to five-year equipment replacement sequence, for example. The plan also can be easily adjusted as new developments arise or as services change. It can be modified, for example, to capitalize on opportunities, avoid catastrophic equipment failure, or evaluate and implement strategy modifications.

In addition, because the technology assessment will have included all high-risk equipment items, risk will be quantified even for those items not scheduled for replacement. From the larger strategic planning standpoint, this result prevents any piece of equipment from "falling through the cracks"-the equipment will be visible on the dashboard even when it is not among the current-year budget requests for replacement.

If replacement of "urgent replacement" items is for any reason delayed, it will be necessary to evaluate the operational and clinical impact of the replacement strategy, within the context of the strategic plan, in addition to the item replacement cost. Contingency plans can then be developed, and contingency funds adjusted, if necessary, to avoid such occurrences in the future.  The visibility that CESP affords to high-risk equipment gives decision makers the time to conduct scenario modeling, formulate contingency plans, and allocate the funds necessary to turn an "emergency" replacement, and associated chaos, into a managed event and routine replacement.

For any items requested for replacement prior to the forecasted replacement time frame, managers should provide a business or clinical case. Fortunately, as a result of their participation in the overall CESP process and the credibility of the information, these stakeholders will tend to have realistic expectations that take into account overall strategic objectives.

Maintaining CESP

Discipline is required to maintain CESP over time. New equipment items must be added to the platform as they are procured, retired equipment must be deleted, and the ratings must be refreshed systematically in order to keep the data current and accurate.  Typically, supply chain or clinical engineering are charged with maintaining and refreshing the CESP as an extension of the combined function of the budgeting process and equipment inventory management.

The information available in the CESP database will only be as good as the data from which it is derived. Moreover, CESP should never be an end in itself. The goal is to have an easily maintained tool that provides credible, timely information to give administrators a sounder basis for strategic decision making.

Is CESP the Right Approach for Your Organization?

Relying on information obtained by CESP as the basis for capital equipment decision making, whether it supports a particular replacement request or not, will be a drastic departure from the status quo for some hospitals. It will require steadfast support at all levels. A transitional curve for adopting the new, data-driven model may help facilitate a change for the better in many hospital cultures.

As hospitals move from an opinion-based to a data-driven decision model, they level the playing field for all clinical equipment in the replacement process. This move streamlines decision-making, provides transparency, and improves relationships among departments that would otherwise clash over the capital budget.

Consider the perspective of a senior executive of a large international hospital that adopted CESP when building a replacement facility:

The CESP program has helped us reduce our total volume of assets due to better utilization and also to reduce aggregate acquisition and ownership costs. It has also improved the performance of our services because it allows us to replace aging technology in a logical manner and reduce use error due to standardization of technologies. The capital equipment strategy plan will be used as the driving document for years to come. It allows senior management to have confidence in the reasoning behind the majority of equipment replacement purchases.

With such benefits in mind, it may be a good time for hospitals that are not yet using a CESP approach to seriously consider doing so.


John Evanoo is a principal, RTKL Healthcare Technologies Group, Dallas (jevanoo@rtkl.com).

Debbie Cameron is a vice president, RTKL Healthcare Technologies Group, Dallas (dcameron@rtkl.com).


Sidebar: A Look in the Mirror: Gauge Your Organization's Readiness for CESP

When facing the challenge of making decisions about annual equipment investments, hospital executives' efforts are all too often stymied by limitations inherent in their decision-making processes. Consider the following practices that characterize the approaches used in many organizations. To what extent do these approaches reflect those used in your own organization?

No formal process. In such an instance, the organization does not use any kind of formal process at all to decide which equipment should be replaced first. This approach-often a byproduct of frequent personnel turnover-indicates a lack of continuity in the organization's equipment replacement process, and even in its overall strategic plan.

Ineffective process. In some instances, an organization may actually be using a long-standing, structured equipment replacement planning process. Even if such a process is mature, it also will be ineffective if it inhibits rapid decision making.

Distressed process. This type of process refers to that used by organizations operating in perpetual crisis mode. These organizations never plan for equipment replacement; instead, they are stuck in a pattern of waiting to replace equipment only when they have no choice but to do so.

Many hospitals also tend to purchase their devices from a number of different manufacturers, often underutilizing some expensive devices, while using others to the point of breakdown.This pattern can create difficulties when a new replacement hospital is being built by raising a set of daunting questions:

  • What existing equipment should be relocated to the new facility?
  • What equipment should be replaced? 
  • How much money should be allocated for equipment in the year the facility will open and in future years?
  • What's the best plan for equipment needs now?
  • How can hospital administrators avoid purchasing equipment during the transition period that may not bridge to the new facility? 

As an example, a large international hospital that was planning to build a new replacement hospital created a partial list of its asset-related problems before it began developing a capital equipment strategic plan. These problems are similar to those that many hospitals face:

  • Initial acquisition costs that are generally higher than international averages
  • Volume purchasing discounts that are missed due to a lack of long-range capital planning and lack of standardization
  • Reagent costs that are too high and misleading
  • Maintenance and repair costs that are too high relative to acquisition costs
  • Lack of a scheduled replacement program
  • Assets that are underutilized because there are too many of them (ultrasound devices, for instance)
  • A high rate of utilization errors because of the many different makes/models, the lack of ongoing training
  • High employee turnover

Publication Date: Monday, February 01, 2010

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