An HFMA Healthcare Financial Pulse Resource

by Michael Dowding 

The traditional capital planning and asset management processes at Sisters of Mercy Health System (Mercy) were falling short on several levels.

Health system leaders were not getting the information they needed to respond to ongoing and dynamic financial issues, control daily capital spending, or manage capital investments. The largely paper-intensive capital processes were also inefficient, causing a time-consuming "in-box shuffle" of spreadsheets and memos. Finally, the health system was missing out on potential savings to be gained with a more centralized approach to facility planning and maintenance across the 20-hospital system. 

With hundreds of millions of dollars at stake each year-Mercy has a planned capital spend of $498 million in the current fiscal year-health system leaders sought to elevate the process to a strategic level. In addition, with increased competition and cost pressures from payers-to say nothing of negative economic indicators-Mercy leaders recognized that capital and asset management represented an important opportunity to improve the system's financial position.

"We found ourselves needing a greater level of visibility and control of our daily capital spending and a way to strategically manage those investments," says Hector Boirie, vice president of capital management for Mercy, which is headquartered in St. Louis. "This needed a higher level of insight and expertise-and a start-to-finish process that would deliver the right value to our enterprise."

Integrated Spending

In 2005, Boirie and his capital management division were charged with launching a strategic initiative that would improve the planning, performance, and management of capital. "Our vision is to create the industry benchmark for capital management in health care," says Boirie. "We think the venue for achieving that is a thoughtful integration of people, process, and technology."

Overall, Boirie and his team identified the following solutions for creating a more integrated and efficient capital and facility asset management process across Mercy.

• Develop centralized systems and processes for all areas of capital management.
• Standardize evaluation criteria for capital needs evaluation and budget approval.
• Achieve greater accountability at department, facility, and system levels.
• Formalize methods of communication.
• Interface with existing enterprise resource planning systems to support better views of spending activity.
• Streamlined purchase processing through automated workflow and information exchange.
• Provide group purchasing organization with better information to identify purchasing opportunities, lower administrative and acquisition costs, and reduce total cost of ownership.

To optimize these solutions and manage capital and asset management across the system, Boirie created four systemwide disciplines (see table below). "Each of these planning areas has a team of highly qualified internal senior consultants with the expertise to facilitate everything from conceptual planning all the way through negotiations and execution," explains Boirie.  "And that extends post-purchase with analyses that help us understand the total cost of ownership."

Consolidating Matters

It is important that no stones are left unturned when looking to maximize efficiencies and building a program of this scope and relevance. The first critical step was to conduct a very comprehensive current assessment, including thoughtful reviews of staff members and functions.  The organization was built based on the highest level of skill necessary to execute the function.  This led to some staff transfers, as well as replacements, to get the right talent in the right positions. "Our commitment was to build this based on people, process, and technology, so we had to look very hard in the mirror and be honest about our needs," says Boirie.

Another sensitive issue involved culture and history. When the hospitals worked individually, each had its own way of doing business. Clearly, that would not be the case moving forward, so Mercy worked toward building acceptance in a multidimensional fashion. That is, some components developed at the grassroots level, while others were very much top-down policies or procedures. The keys were balance, communication, and inclusion. "Change is never simple, but it can become increasingly manageable when accompanied by clarity in direction and honesty in discussion," says Boirie.

Efficiencies Achieved

With the new integrated approach, Mercy has recognized tens of millions of dollars in savings. Here are some specifics.

Capital planning and asset management. Under the guidance of Mercy's Capital Management Planning Committee, the planning and asset management team supports organizational capital strategy and the management of resources at all levels.

The committee primarily consists of high-level executives and, therefore, wields significant influence in the organization. Consultants from planning and asset management provide planning services and manage the capital budgeting process. They review all significant proposed expenditures, provide recommendations to senior management, and participate in software implementations, acquisitions of key clinical technologies, post-acquisition reviews, and more.

"We estimate that we have saved our health system $15 to $20 million annually through these efficiencies," says Boirie.  In particular, this group also oversees Mercy's clinical engineering services. "We have an extensive footprint with more than 93,000 pieces of important clinical equipment that must be maintained within safety and regulatory standards," says Boirie. "It's everything from CT scanners and MRIs to digital mammography and ultrasound machines. We want to minimize variations and leverage our size. So we've developed common standards and procedures for maintaining our equipment, and we focus on consistent training.

"Our process includes annual objective assessments of hundreds of pieces of equipment with acquisition prices of $50,000 or more. We produce one-page analysis documents scoring each piece of equipment, which summarizes its purchase, service history, work orders, and other information-and we use that to determine whether replacement is warranted."

This all takes place in a centralized program with one budget and 130 workers. The net result: an annual savings of $1.3 million a year.

Capital procurement, analysis, and reporting. This team identifies and implements continuous improvements in a variety of tactical financial processes to make capital management inherently more efficient.

"We're continually mapping the 'how' and 'why' of what we do," says Boirie. "We want to establish performance parameters for ourselves and find ways to improve our management of these many changes. Whether it's cost accounting, training, or vendor relations, we want to set the standard in our industry for how to manage capital."

Planning, design, and construction. Mercy is saving $12 to $15 million a year with a consistent approach to facility development.

"We've carefully preselected and approved teams of designers, architects, and contractors," says Boirie. "They've been through a screening process and understand our organization, guidelines, specifications-we don't have to reinvent relationships with each new project. So we get a consistent level of excellent quality at a better price. There's a consistent build environment across our facilities-especially for our clinical space allocations, levels of construction quality, and energy efficiency. We're able to plan these investments much better."

Facilities operations and maintenance. This team has developed a single facility operations and maintenance program that spans the Mercy enterprise. "Our unified approach means we leverage enormous purchasing power for products and services, energy, and MRO activities," says Boirie.

Each year, the consultants create a facility condition index (FCI) for every building in the Mercy system. The FCI is a numeric value of the condition of the building. Based on that assessment, the consultants develop a multiyear plan for updating or replacement. "We use data, not assumptions, to help extend the useful life of our building assets and improving the reliability of our equipment and systems-all while saving the company roughly $2.3 million annually," says Boirie.

Previously Mercy spent $6.22 in annual maintenance for every $100 of capital equipment investments. By centralizing the work with common policies and processes, the company has lowered that cost to just $4.28 per $100.

The facilities operation and maintenance team has also worked to decrease energy costs. "We reduced our energy consumption by one-third-even as we expanded our footprint. One of our smaller facilities was our largest energy consumer on a per-cubic-foot basis-and it was only five years old. So after implementing our program and partnerships in the form of an extensive infrastructure audit, we decided to invest $200,000 in various energy-saving strategies, including technology and process improvements.  It paid for itself within six months, and we've reduced that building's energy bill by $170,000 a year."

Driving Costs Down, Driving Satisfaction Up

"What's important to note is that, as we do this, we're maintaining coworker and patient satisfaction, which we measure twice a year," says Boirie. "We've augmented our services, enhanced customer relationships, and brought tangible and intangible value to Sisters of Mercy-while driving our costs downward by millions of dollars a year."

"That's what you can accomplish when you achieve greater efficiency and leverage your resources fully," he adds. "We now have additional resources to invest that we otherwise wouldn't have at our disposal."

Michael Dowding, of Wordscape Communications, is a freelance writer based in Millis, Mass.

Publication Date: Wednesday, June 17, 2009