Capital Spending Decisions

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March 18, 2009

The tight credit markets are challenging healthcare providers' ability to access capital, according to the first survey in HFMA's Healthcare Financial Pulse project. Over 70 percent of all survey respondents forecast at least some cutbacks in such capital expenditures as IT systems, medical technology, and facilities construction.

Helping healthcare organizations make wise decisions about capital spending needs will be a key focus of HFMA's Healthcare Financial Pulse, a new initiative sponsored by McKesson and RelayHealth. A March 25 audio webcast, "Making Difficult Decisions about Capital Projects," will consider non-traditional approaches to thinking about facility solutions, service line strategies, and the clinical enterprise to ensure that your organization is deploying its capital resources in the most efficient way. This issue of HWYTK highlights some additional issues to consider when planning for capital projects in a difficult economic environment.

Facilities

According to "A Fresh Look at Capital Investments," an article in the March 2009 hfm magazine, spending on healthcare facilities almost doubled since 1999.

Not all of this facility spending was wisely planned. Going forward, healthcare organizations should take a few important steps to maximize their facility ROI.

Go back to basics. It is time to refocus on operating efficiency. Review core patient throughput metrics to improve utilization. Reduce length of stay where appropriate, keep times in the ED and imaging departments within benchmarks, and scrutinize operating room block time.
Maximize highest and best use. Ensure that bed assignment strategies do not deny more profitable service lines access to inpatient beds. Also focus on reducing the use of inpatient beds for observation outpatients.
Emphasize morning discharge. Try to keep the percentage of discharges before 11 a.m. above 30 percent to avoid significant overlap between patients being discharged and those being admitted on any given day.
Promote flexibility. Consider whether your facility resources could be used more flexibly. Service areas that could potentially share physical resources, for example, could be placed adjacent to one another.

Information Technology
IT has become a significant area of capital investment--second only to new facility construction--but many providers are not realizing their planned ROI. Consider these measures to manage IT investments and costs.

Make decision making work. Clinical and business leaders who are familiar with the IT system's benefits and risks should remain engaged in IT decision making at every step.
Extract value from IT investments. Hold relevant directors and managers responsible for achieving performance improvement metrics in such areas as adverse drug events and supply spend.
Reduce IT demand. Be sure that business and clinical leaders are ready to commit to measurable improvement--agreeing, for example, to reduce departmental budgets in anticipation of improved performance--before further IT investments are made.
Standardize and consolidate IT. Don't discard all existing systems. Instead, focus on solutions (switching to a single e-mail system or a common lab system) that produce a year-over-year decrease in the unit cost of providing IT systems.

This year's ANI: The Healthcare Finance Conference, June 14-17 in Seattle, offers several sessions on IT investments and utilization, including "Reducing Costs of IT Acquisition" and "Leveraging Technology to Transform the Business Decision Process." Learn more.

Clinical Equipment and Technology

The purchase price of new clinical equipment and technology can easily run into the millions of dollars. The following criteria can help in the decision-making process.

Consider the true benefit of the purchase. Most new technologies improve quality of care. Also ask whether the investment will increase market share or justify higher levels of reimbursement

Make sure the purchase is aligned with your patient base. Does your patient/acuity mix justify a new technology purchase? It may be more cost effective to seek out a partnership with a tertiary or academic center for more complex patient care.

Consider the tie between equipment and physicians. Is the purchase being advocated by one physician? If so, what would be the impact if he or she were to leave? Also consider whether the technology could be used to recruit other physicians.

Create a cross-functional team. Clinical equipment purchases should not be the decision of the finance department alone. Create a cross-functional team that can offer advice on the implementation and potential uses of a new technology.

Capital planning is not the job of Finance alone. In today's economy, CEOs and CFOs must collaborate to ensure that scarce resources are allocated strategically. An April 7 audio webcast, "CEOs / CFOs: Working Together to Succeed in the Difficult Economy," will consider the advantages of teamwork and coordination among top executives in these turbulent times, with a focus on capital allocation. Register today.

HFMA's Healthcare Financial Pulse web site will continue to offer updated information on capital spending decisions. Among the new offerings on the site this month is a resource on "Financing to Meet Community Needs: A Guide for Small Hospitals".

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