Capital investments are moving away from brick-and-mortar purchases and more toward health IT and information flow, and many hospitals are negotiating both on a tight budget.
At the Becker's Hospital Review 7th Annual Conference in a session titled “Key Thoughts on Allocating Capital” hospital CFOs and thought leaders examined the best strategies for optimizing capital purchases at the hospital. Heather Punke, managing editor at Becker’s Healthcare, moderated the panel.
“Typically we get requests for twice of what we spend. We have a process where primary criteria is clinical impact, financial impact and strategic impact,” said Robin Norman, senior vice president and CFO of Virginia Hospital Center. They score the impact and the executive team can make changes before the project goes forward. Many hospitals are taking a more analytical approach today than they did in the past with volume-based decisions to determine how each purchase will affect clinical outcomes, improve efficiency and reduce costs.
The hospital expenditures among the panelists included parking garages, modernization updates and IT investments.
“Seven, eight years ago, much of capital investment was in bricks and mortar; that has changed dramatically over the past five years. Where we see spending is in IT. That’s a huge initiative in almost every hospital across the country. The next spend falls into access convenience like ambulatory outpatient centers, hub and spoke delivery systems and investments that focus on quality and efficiency initiatives,” said Kerri Schroeder, specialized industries credit products executive at Bank of America Merrill Lynch.
The panelists haven’t experienced return-on-investment for their IT initiatives yet. The hospital administrators often don't cut FTEs to cover the expenses with clinical or nursing time saved; instead, they look for hard savings versus nursing time and soft savings.
“It’s very tough to come up with ROI for IT investments. Oftentimes, so much of the savings has to come through clinical changes and changes in protocols. Implementations are so complex, it oftentimes feels like you are never done with IT investments,” said Ms. Schroeder. Now hospitals are looking at how they can link their EMR to other electronic systems to streamline information flow and create the best efficiencies. “Defining what you earn on these investments is very, very difficult.”
Pamela Hess, CPA, CFO of St. Thomas Midtown and St. Thomas West Hospitals, discussed her network starting an ACO a few years ago and went on a path toward patient-centered care. They looked to the community to bring services to patients, opening clinics and ambulatory facilities where patients can receive services they need without having to travel to the main hospitals. One recent facility includes primary care, cardiac and orthopedic care.
“We are focused on having patients come to one place where they can get all their care and if necessary we will refer them out,” she said. “We do have our own rehab. We are contracting with post-acute organizations so if they come to the hospital for inpatient services we can continue their care with post-acute care. All of those initiatives take dollars.”
The other hospitals represented on the panel are also moving toward outpatient care and population health initiatives within and beyond the hospital’s walls. The hospital executives create long-term plans, but re-evaluate often to make sure their goals make sense going forward.
“Our capital allocation process is pretty collegial. One of the things we had on the books last summer was to look at a population health IT solution. It was about half-million dollars for phase one of that. There was a roof on our budget and we decided the package we were looking at wasn’t quite ready for prime time. And then earlier this year, that VP came to me and said when are we going to start population health?” said Joseph Pedley, CPA, vice president and CFO, Lawrence Memorial Hospital. The director of accounting had taken good notes and now the project is moved to 2017. “We are completely independent, so we have control and our board is supportive. All the time we are looking at new things and our capital budget is kind of a guideline as much as it is a budget.”