Managing capital budgets today has become an increasingly difficult task for hospital CFOs and other finance executives. Certain projects must take priority over others, and it’s difficult to balance which hospital departments receive extra funds while others sit and wait.
Zeke Triana and Patrick Barton have worked the ins and outs of capital projects at Cedars-Sinai for a long time now. Mr. Triana is director of planning, design and construction, while Mr. Barton is director of finance for planning, design and construction. They oversee every project at Cedars-Sinai, from changing furniture in a building to the construction of a new cardiac catheterization lab. Here, they explain four core principles that hospital executives and capital budget teams must follow in order for both finances and projects to be in sync.
1. Have the fiscal discipline to craft capital projects that meet with the budget. Every year, the hospital C-suite, board and other leaders create the annual budget. Within that budget is a predetermined amount of money to spend toward capital projects for the year. Staying within those boundaries can often be difficult, especially if impromptu projects arise, but Mr. Triana explains it is necessary to tailor hospital projects around that set, predetermined budget — not the other way around.
“That is one of the biggest challenges because in an academic medical center, there’s constant change,” Mr. Triana says. “One of the challenges is how do you create a capital budget but also one that is flexible to the marketplace?”
2. Understand your capital project schedule. Because Cedars-Sinai is such a large organization, it uses a software system, Enstoa, to manage and track all its capital projects. Mr. Barton says it is essential for hospital leaders to tie monitoring software with their capital budgets. Further, everyone involved must know the intimate details of every project because far too often, capital initiative timelines can spiral out of control, which could inhibit a hospital’s bottom line.
“In our environment, the key is understanding the schedule,” Mr. Barton says. “It’s not waiting for a red flag, which automatically has an impact on cash flow. We want to have that understanding and be nimble enough to make adjustments so we are not overspending.”
3. Senior leaders and project managers should meet at least every quarter. Mr. Triana says Cedars-Sinai engages in a simple and collaborative process to handle complicated capital projects. At a minimum, the C-suite and capital planners/project managers meet once every quarter.
First, the financial team will make a business case for a project, such as a cardiac cath lab expansion. After the business case is made, the financial team and senior leadership review it together and decide if it makes sense fiscally. If approved, the project moves forward, and the hospital hires consultants, architects and others, so long as the project is still fiscally viable and will not go over budget.
Mr. Triana and Mr. Barton both say having this free flow of communication between senior leaders and capital planning, at least quarterly, establishes trust and ensures that all parties describe the progress of all initiatives.
“This way, we have the opportunity to green light or stop projects at several steps,” Mr. Triana says. “Because so much is happening in healthcare, it’s an opportunity for us to keep a finger on the pulse of the project.”
4. Evaluate the growing value of outpatient projects. Healthcare reform, both directly and indirectly, is steering the hospital sector to more outpatient-driven arenas. Large inpatient towers are no longer prime targets for hospital capital budget plans, Mr. Triana says, and he believes healthcare organizations will branch out more. At Cedars-Sinai, this will include smaller-scale clinics and urgent care centers in neighborhoods closer to patients.
“I think we’re going to see more outpatient projects and projects that can reach out into the community,” Mr. Triana says. “Obviously with reform, millions of people who didn’t have healthcare before all of sudden will be provided with access. They may not need a neurosurgery or cancer center — they may just be suffering from the flu or broke their arm — and a good percentage of that population could be served through outpatient care.”
More Articles on Hospital Capital Planning:
4 Drivers of Healthcare Capital Financing — And How They Affect CFOs
6 Traits That Define a Great Hospital CFO
What Does it Take to Be a Hospital CFO Today? 6 Thoughts From Lowell General Hospital CFO Susan Green
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