Strategic Value Analysis In Healthcare
STRATEGIC VALUE ANALYSIS TM NEWSLETTER
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Strategic Value Analysis In Healthcare |
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STRATEGIC VALUE ANALYSIS TM NEWSLETTER |
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Home Weekly Strategic Value Analysis Newsletter View Archived Strategic Value Analysis Newsletters ValueNet CentralTM Value Analysis Software
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June 25, 2004
“Healthcare Organizations Are Scrambling To Find More Dollars To Fund Their Capital Budgets, When They Have Many Of The Answers Right In Their Own Back Yard.” A recent survey by the Healthcare Financial Managers Association of 640 hospital and healthcare systems nationwide disclosed that more than 8 out of 10 hospital CFOs were greatly concerned about where they will find capital dollars for future capital purchases over the next 10 years. In fact, HFMA’s President and CEO Richard L. Clark says, “(healthcare) capital spending (is) expected to rise 14 percent per year over the next five years” alone. So where is this new capital funding going to come from, since most sources of capital funding are drying up? The answer: healthcare organizations will need to adopt new innovative and customized strategies and tactics to conceive, plan, prioritize, develop, deploy, and purchase new and replacement technologies. Otherwise, they will see their physical plant and equipment deteriorate beyond their usefulness life and cost effectiveness. A case in point is a client of ours who purchased little or no capital equipment for many years, only to find out that their operating cost was 5x higher than their peers because of the condition of their old, obsolete and out-dated equipment and deteriorating physical plant. The moral of this story is that you either pay now or pay “big time” at a later date if you don’t adequately fund your healthcare organization’s capital budget annually.
3 Winning Strategies To Squeeze Out More Capital Dollars To avoid the regrettable and costly experience of this client of ours, I would like to share with you three winning strategies. It is my hope that these ideas will encourage you to adopt new innovative and customized strategies and tactics to squeeze out more capital dollars of your healthcare organizations capital budget:
1. Open Up Your Capital Expenditure Process To Peer Review Most hospitals’ capital expenditure decision making process involves the CEO, CFO, COO, division vice president, and the department head or chairperson who requested the expenditure. This limits input from unbiased and impartial parties who could greatly contribute to this decision. A much better way to evaluate capital expenditures is to form a technology value team composed of clinical and non-clinical members who have no stake in the capital purchase being proposed, so they can give senior management untainted and unvarnished opinions on the appropriateness of each purchase.
2. Start Your Capital Purchasing Evaluation Process Early Allow your technology value team to participate in your capital expenditure “vetting” process as early as possible, preferably when capital expenditures are submitted to the office of the vice president of finance for review. Let this team financially justify and prioritize your hospital’s capital expenditures in consultation with the requesting departments, prior to submission to your finance committee for final approval. Naturally, your CFO or budget director would chair this value team, so that he or she could tie together all the loose ends required to meet your capital budget policies and procedures.
3. Value Justify All Capital Purchases With Value Analysis Tests Don’t accept that the requesting departments have all the answers and have looked at all of the possible functional alternatives available to your hospital. Make sure that value analysis tests are performed on all capital expenditures by your technology value team before any bid is sent to interested vendors or purchase orders are released. If applied religiously to each capital expenditure request, these three winning strategies will position your hospital or healthcare system to reduce their capital expenditure costs by as much as 25% without even breaking a sweat.
Biggest Savings
Potential Are In The Concept and Its been consistently and repeatedly documented that if you apply the value analysis methodology as close to the concept and development (when the idea starts to germinate and take form) phase of your capital expenditure process -- this is where the cost savings potential can generate the maximum yield for you. However, if your Technology Value Team has to wait until the design/build phase of your capital expenditure project (when you have already formulated your specifications) to participate in your capital expenditure process -- you decrease your cost savings potential yield. The reason for this maxim should be obvious. Once a capital expenditure project is specified; it becomes more difficult for value analysis practitioners to open closed minds to potential savings. This is opposed to a value analysis practitioner being an active participant in the brainstorming phase of your capital expenditure process. No matter how you decide to structure your capital expenditure process, or when to have value analysis practitioners actively involved in your capital expenditure process, now is the time to establish, redesign, reframe or reinvent your capital expenditure process to squeeze out more dollars for your desperately needed new and replacement technologies.
About the Author
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COPYRIGHT 2003 - THE HCP GROUP, LTD. - ALL RIGHTS RESERVED |
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by
Robert T. Yokl, President