As health systems face mounting margin pressure, finance leaders are turning to every available lever to stabilize or improve their operating margins, and some are finding relief in an unlikely place.
Asset Relifing, the practice of aligning the useful life of assets — including buildings, equipment and IT assets — with a more accurate representation of their actual use, has quietly gained traction across the industry as organizations look to improve operating margins without reducing staffing levels or services. The approach can increase operating margin immediately, with little to no disruption for providers that implement it.
To learn more about Harborside Health’s Asset Relifing solutions and how they benefit healthcare organizations, Becker’s Healthcare spoke with Jim McManus, CFO of Chillicothe, Ohio-based Adena Health, and John Mordach, a healthcare CFO with more than 30 years of experience in the field.
Editor’s note: Responses have been edited lightly for clarity.
Question: How would you describe Asset Relifing, and what made you open to exploring it at your organization?
John Mordach: One of the fundamental principles of accounting is matching revenue with the expenses generated to earn that revenue. Asset Relifing is revisiting the useful lives associated with the organization’s assets and adjusting them, if appropriate, so the useful lives are accurate.
Jim McManus: Many assets, buildings and equipment, are utilized much longer than their originally assigned useful lives that are based on standards established many years prior. For example, medical equipment lifed at 5 years can actually be utilized beyond the 5-year time period as long as they still meet the standards of care for patients. When assets are lifed over a shorter period of time, it means expenses/depreciation is not being matched to the revenue generated. Asset Relifing associates the proper useful life of assets with the revenue being produced.
Q: What stands out about Asset Relifing as a performance improvement strategy, and how did it compare to other options you were considering?
John Mordach: CFOs are looking at lots of ways to improve margins — things like supply chain initiatives, workforce reductions or redesigning work. Many of these initiatives fall short and many impact the organization’s people. While a health system may still pursue some of these initiatives, Asset Relifing provides significant benefits in a short period of time to implement without negatively impacting the organization’s people.
Q: What did the implementation process look like?
John Mordach: The first step is that the Harborside team performed a complimentary assessment. They did an assessment of all of the assets we own — including buildings, equipment and more — and provided an estimate of the potential financial benefit of relifing.
Once we agreed upon the scope of deliverables, the implementation process took four to six months and required modest involvement from our staff.
Jim McManus: The bulk of the work is done by the Harborside team. Based on the asset list provided by the healthcare organization, Harborside identifies the assets, ensures an asset is actually present and the condition it is in and if the useful life should be modified. The finance team reviews Harborside’s reports before they are finalized. The healthcare organization’s finance team electronically uploads the new useful lives into their ERP system. The engagement runs smoothly and does not take much time to complete.
Q: What are the benefits of Asset Relifing?
Jim McManus: The most obvious benefit is operating margin improvement, which is realized via reduced depreciation expense for the entire fiscal year. For organizations on a pathway with other initiatives, this provides a runway to prioritize and execute other performance improvement plans.
Relifing can also support annual credit reviews that can lead to a better bond rating outcome. Also, the removal of assets no longer in use from the asset ledger can lead to lower insurance costs. In the first relifing engagement, we saw a significant reduction in assets that were no longer in use and were fully depreciated.
John Mordach: Asset Relifing can result in lower depreciation costs, which can improve operating margins by 1% or more, resulting in potentially millions of dollars in savings. The process of conducting a review of all assets will also result in cleaning up of the books. For example, through this process, we discovered a large number of assets on our books that we no longer owned because they had been traded in or sold, therefore we reduced insurance expenses and improved operating margin significantly. It will also help with capital planning by having better visibility into asset replacement timing and values.
Also, many accounting firms, including the Big Four, are familiar with Asset Relifing and have been supportive of Harborside’s recommended changes.
Q: How did Asset Relifing fit into your broader financial and strategic priorities?
Jim McManus: It is important to have accurate knowledge about the value and life of your assets so the organization can make informed multi-year decisions about investments in plant and equipment.
John Mordach: This helps improve margins in the near term but is also important in taking a longer-term view of the organization’s assets and needs. It’s important information for capital planning.
Q: For CFOs hearing about Asset Relifing for the first time, what would you tell them?
Jim McManus: I would advise CFOs that Asset Relifing can make a significant difference, that it provides a good foundation and that Harborside specializes in providing these services. As always, it is important to do your own due diligence including the checking of references prior to engaging in this effort.
Asset Relifing provides accurate lives for each asset that allows for creation of a long-term capital plan and a guide to properly value your assets going forward.
John Mordach: I would tell CFOs that at a minimum, do a complimentary assessment. The effort is minimal and you will see the potential impact this could have. Asset Relifing provides a credible alternative to other options that can improve the organization’s margins without putting it on the backs of employees.
By reducing insurance expenses and service contracts, you will save cash and you will clean up your books.
About Harborside Health
Harborside Health is a healthcare performance improvement consultancy dedicated to guiding hospitals and health systems toward stronger financial outcomes. With more than two decades of exclusively healthcare experience, Harborside uses proprietary data and industry-leading expertise to reassign accurate useful lives to fixed assets — precisely matching revenues and expenses to deliver measurable operating margin improvement for leading organizations. Built on collaboration, trust and a commitment to “Doing the Right Thing,” Harborside partners with clients to drive immediate and lasting financial results.
Recent Asset Relifing clients include Allina Health, Banner Health, Bon Secours Mercy Health, CHRISTUS Health, Cleveland Clinic, Emory Healthcare, Hartford HealthCare, Seattle Children’s, SSM Health and many more. Harborside is proud to work alongside these organizations and others to reduce annual depreciation expense by 20–30% and immediately improve operating margins by 1–2% on average.
Strong margins are essential to every health system’s mission, and Harborside Health is committed to guiding organizations toward sustainable and long-term financial performance.
For more information or to request a complimentary assessment, contact us at contact@harborsidehealth.com.
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