A Facilities Reinvestment Schedule Prevents Surprises, Creates Savings Opportunities

Identify equipment that needs to be replaced before it fails during critical junctures.

Numbers-driven hospital leaders are bombarded with budget requests from leaders seeking new equipment, expanded clinical lines, and many other worthwhile endeavors. One budget category that is sometimes underappreciated, but which supports all the rest, is the facility itself.

“In my opinion, there are a lot of healthcare organizations that don’t have a structured recapitalization program supported by policies, guidelines, and metrics,” says Don D. King, president of Donald King Consulting and a 40-year veteran of healthcare facilities leadership. “So they are caught in the ad hoc process of sitting down every year to seek money for failing chillers, aging roofs, and more.”

Having disciplined, long-term reinvestment schedules is one way many healthcare organizations keep their facilities in top shape, maximize energy savings, and prevent catastrophic systems failures resulting from deferred maintenance.

The Bright Side: Saving Money

Creating facilities reinvestment schedules helps hospital leaders evaluate risks, but it also may improve bottom lines.

One way reinvestment schedules can do that is by identifying equipment that needs to be replaced before it fails during critical junctures. For example, if assessments identify chillers that will likely fail in the next 12 months, hospitals can select the most cost-efficient moments to replace them, rather than waiting for them to fail and having to replace them on emergency bases.

“If the assessment says we may lose that chiller next summer, let’s schedule a replacement in the winter, when downtime can be scheduled to minimize disruption, the installation is cheap, and parts are available,” King says. “Or we can wait until August when it fails, and we’ll have to convince the manufacturer to pull a chiller out of the customer queue or make a custom one just for us, and pay a team to work overtime to get it installed.”

The other way reinvestment schedules can save money is by identifying aging equipment that can be replaced with more efficient equipment.

“Quite often, the renewal can pay for itself through energy savings or other efficiencies,” says Tim Adams, director of leadership development for the American Society for Healthcare Engineering (ASHE). “Older infrastructure is probably inefficient.”

Sometimes these situations arise together. For example, if a hospital is getting a good deal on a chiller because the CFO scheduled a replacement during the winter months, it might pay off to spend 10 percent more and get the high-efficiency model, because the energy savings alone will pay for the investment in a few years, King says.

What Is a Reinvestment Schedule?

A reinvestment schedule is a plan for replacing aging facility elements, also called “recapitalizing.” The schedules vary in detail, but the most useful features are that leaders know the life expectancies of their hospital systems, the most efficient times to replace aging systems, and how much it may cost to do so.

The schedules can cover a wide variety of major systems in hospitals, such as HVAC, electrical, plumbing, medical gas, roofs, and life safety systems. At one hospital system where King worked, 23 systems were being monitored.

The actual documents can range from informal written plans to thorough database-driven applications.

“The form a reinvestment schedule takes varies in accordance with the level of the program,” King says. “In some organizations, it may be just an 8.5 x 11 yellow legal pad. In some others, it may be an Excel database. In some, it may be a sophisticated database that captures all the requirements and tracks them as they are worked off.”

Implementation

The data that backs up reinvestment schedules comes from several sources, ranging from equipment manufacturer documentation to savvy facilities managers with their fingers on the pulses of hospitals. But perhaps the most comprehensive source is the facility condition assessment.

“A facility condition assessment gives you a true listing of what needs to be done and when,” says Jonathan Flannery, senior associate director of advocacy, ASHE. “It’s important that the C-suite has a transparent, thorough understanding of those things.”

Facility condition assessments are hands-on, top-to-bottom evaluations of hospital systems. They include documentation—such as an examination of equipment maintenance records and equipment life expectations provided by manufacturers—but they also include physical inspections of everything that could potentially break down.

“You typically go through and evaluate every system,” says Flannery, who was a facilities manager at three healthcare organizations before joining ASHE. “For example, you inspect all of the air handlers and evaluate their current condition. You use various instruments to track the amount of resistance on a coil, you measure the fan speed, etc. And you look at the original manufacturer’s information and compare the numbers with what they are now. You might say, ‘We are at 95 percent of the manufacturer’s stated fan speed, but it’s 10 years old, so 95 percent is still pretty good.’”

Flannery says the facilities condition assessments are frequently done when facility department leadership changes, because new leaders want to get a handle on conditions.

“As I came into each hospital that I managed, I did a facility condition index to determine all the deferred maintenance,” he says. “If you don’t do that up front, two or three years down the road, how will you compare? You want to be improving the picture, reducing the deferred maintenance. So you have to set the baseline.”

The facility condition assessments should not be one-time events. Annual reassessments are helpful—even if they are not quite as in-depth each year—because they allow leaders to see how facilities are aging and what new priorities are emerging.

Some third-party organizations, such as engineering firms and consultants, conduct facility condition assessments, yet they are often done by in-house staff.

“You just need to make sure the team doing the assessment is balanced,” King says. “You don’t just want an electrician and a plumber on the team, or else electrical and plumbing projects will probably get priority. And you should make sure that you use the same group of people year over year, if possible, because they will have a more consistent view of the facility. If your team changes each year, and your assessment changes, you won’t be able to tell if it changed because the building is actually deteriorating or the new team is viewing things differently.”

Risk Assessment

Assessment information drives creation of reinvestment schedules. Schedules—whether they are scratched on a notepad or entered into sophisticated databases—prioritize items for replacement by the likelihood of failures and the likely consequences of failures.

The items on schedules may be assigned time frames—“The chiller in Building 3 is likely to fail in the next nine months”—and dollar amounts for replacements. Together, those data points can help leaders estimate reinvestments required to maintain facilities.

However, time and cost are not the only factors leaders consider.

“The facilities investment schedule is a tool for risk management,” says Skip Smith, system vice president, physical asset services, Catholic Health Initiatives. “A CFO might look at an assessment that says that the hospital needs to invest $10 million over the next three, five, or seven years. They should dig in and say, ‘Where are the biggest risks?’ For example, $5 million might be for a new auditorium and administrative suites, but there may be $1 million for operating room ventilation. The risk connected with the OR ventilation replacement is very different than the other projects.”

King suggests that reinvestment schedules be evaluated based on three types of risk: technical, operational, and financial.

The technical risks refer to collateral damages that result from the impact of one facility element failure on related elements. For example, if an aging water heater springs a leak, will the leaking water potentially damage the floors and ceilings of that wing of the hospital?

Operational risks are based on the potential impacts failures may have on hospital operations. “If you have to shut down a wing because you don’t have hot water, or you can’t do sterile processing, those operational impediments are much more serious than the technical, problem” King says. “Then you can’t meet your mission.”

Financial risk is represented by the dollar amounts attached to replacing failing equipment, collateral damages, and operational damages.

“If infrastructure that is beyond usable life is causing delays for surgery or diversions because we don’t have rooms available, that can be a serious dollar loss,” Adams says.

Reinvestment Schedule Timing

Remembering the potential upside of facilities reinvestment may be most important during budgeting seasons.

“Unfortunately, the facilities budget is often competing with projects to build a new clinic or start a new clinical line,” King says. “We believe the sharper healthcare companies would carve off some capital at the beginning of the budgeting program and set that aside for facilities reinvestment. So if you have $10 million at the beginning, carve off $1 million for maintenance and code issues, and don’t let any other requests compete for that money.”

Interviewed for this article:

Don D. King is president, Donald King Consulting.

Jonathan Flannery is senior associate, director of advocacy, American 
Society for Healthcare Engineering.

Skip Smith is director of facilities management, Catholic Health Initiatives.

Tim Adams is director of member leadership development, ASHE.