Equipment Budget Wizardry – Planning for New Technology
Healthcare equipment planning is always a challenge but a few tricks of the trade can help manage the process.
In today’s consumer-driven market, patients are shopping for healthcare, just like they have always shopped for commodities. Technology can give hospitals a leading edge, because the right tools and equipment can improve patient satisfaction, increase safety, and even attract top physicians. Whether the project is a unit renovation, an addition, or a replacement hospital, it’s all about making realistic budget decisions in order to keep ahead.
There’s no question that the costs of medical equipment can be overwhelming. These have traditionally represented 10% to 40% of a healthcare project budget, but the complexity of current technology and equipment can increase that percentage significantly.
As a first step for any new project, it is important to determine what equipment to reuse, what to replace, and what funds to allocate for new equipment. It takes a unified team effort through all phases of a project to create a budget, track it, and stick to it.
Budget compliance starts with asking the right questions:
- Is this project driven by a need for expansion or the addition of new service lines, which will require a greater amount of new equipment?
- Are there any organization-wide initiatives that require a large investment in new technology, such as the conversion to a paperless environment, medication safety, or telemedicine and teleconferencing?
- What equipment can be reused safely and efficiently? Can existing equipment interface with new technology?
- Will new technology make any existing technology obsolete and reduce the amount of reusable equipment?
As is the case for any project, it’s no surprise that consensus can translate into dollars saved. Setting a realistic budget, agreed upon by all stakeholders, will help balance clinical needs and staff expectations to keep things on track.
Forecast emerging technology
Emerging technology is a moving target, so it’s difficult – but not completely impossible – to forecast future needs. Resources for this information are abundant, ranging from conferences to publications, manufacturers’ representatives, and group purchasing organizations.
Create a conceptual budget
Created during the schematic phase or even earlier, the conceptual budget is the cornerstone for the final equipment budget. From the beginning, this budget should itemize projected costs by department (sometimes by floor or service line) and identify the biggest-ticket items. It should be considered a “living” document that is refined at each phase of the project.
Decisions made during the course of the project will impact the equipment budget (or vice versa!), and it’s essential to track progress and quantify changes as they occur.
Tips, timing and tools
Budget tracking requires periodic review of the budget. Basic milestones are schematic sign-off, 50% design development, 100% design development, and final construction documentation. Other milestones may be board meetings, steering committee meetings, or other events.
A budget tracking tool, starting with the conceptual budget, is also key. As the project moves forward, it is used to compare current costs with original assumptions and makes it easy to pinpoint why changes happen and to limit negative variances when they occur.
A Note about notes
The tracking tool can contain any clarification and progress notes that are arranged by date, as well as a list of exclusions. These notes are particularly helpful for projects of long duration with large medical equipment budgets, since the budget may change as different responsibilities are assigned (contractor-supplied, interiors-documented, etc).
List vs. discount
Except for proprietary technology, hospitals enjoy discounts that vary by product line. The budget tool should document list prices for each item, compared to an average discount percentage that represents the hospital’s overall buying power. As construction and procurement move forward, the tool can be updated with actual quotes from vendors.
Allow for allowances
“Allowances” are placeholders for future technology and small-but-significant categories of equipment that are not represented in the equipment budget. These include equipment selections that are pending at time of project documentation, as well as minor equipment, instruments, and accessories that are essential to quality patient care. Since these costs can escalate alarmingly, it is good to watch them closely.
COST REDUCTION STRATEGIES
It’s difficult to keep costs on track during the course of a project. Here are some simple steps that can help to address the challenges of equipment budget compliance.
Viable, existing equipment can save costs significantly and even fund investments in new technologies if the equipment works well and people use it. However, it’s good to keep in mind that existing equipment could incur relocation and re-installation costs, as well as time spent off-line when it has to be moved.
Standardize for savings
Vendors welcome big purchases, because it gives them a predictable volume of sales. Standardization of equipment or manufacturer can translate into measurable budget savings for a hospital and facilitate opportunities for training, support and research programs.
Negotiation is like the Lottery – you can’t win if you don’t play! Negotiating can lead to price breaks and reduced costs for freight, installation, accessories, or training – discounts that together can add up to significant savings.
Loyalty to a brand or to an attentive sales representative has its comforts and also its risks, even if a vendor has been supplying equipment to a particular hospital for decades. It’s always good to compare prices.
Join a group purchasing organization
Membership in a group purchasing organization (GPO) provides discount contracts for equipment and services, as well as access to benchmark data, technology trends, and research. The cost of membership may often be worth the investment.
CREATIVE FUNDING SOURCES
When all else fails, it is important to investigate alternative funding sources to solve the budget dilemma. These sources include:
- The hospital’s annual capital equipment budget, which can help fund new and future technology
- Leasing, which can be more cost-effective than direct purchase of equipment and technology that is rapidly changing
- Rental on an as-needed basis or cost-per-case basis, especially for equipment that is used infrequently
- Equipment supplied by ancillary departments in the same hospital or health system
- Grant money awarded to a hospital, which may be left over at the end of the year
- Foundation giving or donation opportunities, which can often fund equipment and technology for entire suites
Justifications for investing in new technology are becoming more varied and also more urgent. For many, state-of-the-art technology symbolizes an organization’s commitment to quality care and safety.
First, there are the patients, who are becoming more educated – and more discerning -- about their healthcare options. They are looking for shorter lengths of stay, quicker recovery, and less pain. Technology is one way that hospitals are improving throughput, access to information, and overall comfort.
Then there’s the staff, who can benefit from new technology. It gives them opportunities for new methods of patient care delivery, as well as greater efficiency, performance and reliability.
In the end, equipment budget wizardry does not require a crystal ball or a magic wand. All it takes is excellent preparation, constant vigilance, and a few good tricks of the trade.