3 Keys to Effective Budgeting for Capital Equipment

Even before the term “big data” was coined, raw data has been the cornerstone of the budgeting process. However, in today’s world, data means so much more. From benchmarks and key performance indicators to return on investment and total cost of ownership, there are mountains of data to comb through to effectively budget for capital equipment. Not interpreting the data correctly can have serious consequences for a construction project. In fact, Health Facilities Management magazine said, “Key to the success of a healthcare construction project is a vetted and approved medical equipment budget. This lays the foundation for the application of practices that may not only save the facility money on medical equipment but on the entire project cost.” What role does data play in your capital equipment budget, and how can hospitals implement an effective data strategy?

The Challenge

Whether a hospital is planning for a new facility or predicting replacement costs, equipment budgeting can be a major challenge. Medical equipment is a critical part of patient care. However, it’s often measured in the millions. In a perfect world, a hospital would purchase just the right amount of equipment to meet patient needs. However, healthcare is a dynamic environment. Patient demographics, technology, and healthcare legislation are all variables that must be considered. Unfortunately, healthcare organizations often put off equipment acquisition or replacement, hoping for bigger cash flow in the future. When those days never come, the organization is left with a replacement demand that is much greater than its annual capital planning budget.

Typically, hospital equipment budgets are divided up by department and continue to carry over year after year. Budget decisions are made based on what was necessary the previous year instead of exploring current trends and real needs based on hard data. The data that is used to justify expenditures are usually outdated or based on anecdotal requests. Personal opinions are trusted without the data and research to back them up.

According to Healthcare IT News, the current process of budgets being divided up by ancillary departments actually inhibits innovation. Innovation tools have big price tags. This makes it difficult for one department to budget for these products when they must pay for it out of their own budget, and they only have historical data to back-up the purchase. How can hospitals reverse this trend? Gain access to valuable data.

How Can Data Help?

A fact-based analysis can often yield surprising results. Consider three key types of data, and how they can revolutionize the way hospitals budget for capital equipment.

• Internal utilization data. Start by analyzing internal data. Gathering data about workflow, equipment use, and equipment status can have a tremendous impact on expenditure plans. Get over the notion that efficiency only comes from acquiring new equipment. Accurate data may just reveal that new equipment is not needed. Here’s an example. A department requests additional IV pumps because they never seem to have enough. Nurses waste valuable time searching for them. After thorough research, data reveals that quantity isn’t the problem. It’s a workflow issue. The pumps are not being returned to a central location where they can be found quickly for the next patient. According to one report from GE Healthcare, the average utilization rate of mobile equipment is less than 42 percent. Gathering and analyzing data is the only way to determine where the budget can be streamlined. Internal data analysis will also take into consideration not just categories of devices, but all factors that affect the budget. These might include relocation costs, equipment upgrades, leases, transition rentals and IT integrations.
• Financial data. Budgeting relies on financial data. Be sure yours is accurate and up-to-date. Immediate access to data that tracks key performance indicators (KPI) will help identify issues at soon as they arise. KPI’s can indicate superior, adequate or poor performance. Comparing the KPI’s to other data will help identify the role of medical equipment in performance. Data such as work hours, overtime, number of patients, and full-time employees per bed help determine true capital equipment needs.
• Industry and population data. “Looking at historical trends and just moving them forward won’t work anymore,” stated an industry expert in an interview with Healthcare Finance. Hospitals must be able to predict needs, and data analytics provides that glimpse into the future. Data will help hospitals accurately forecast risk. Answer questions such as how will new payment models affect our ability to realize ROI on a certain device. Look at population health models to determine the growing needs of the demographic you serve.

Analytics Help Create Flexible Budgets

Healthcare is dynamic. Gone are the days of setting a 12-month budget and simply making minor adjustments annually. Hospitals must have an equipment planning strategy in place that utilizes data to provide real-time analytics to decision-makers. Software that tracks performance against the budget in real-time allows managers to revamp budgets on a monthly or quarterly basis.

According to Harvard Business Review, “Using data analytics to develop a pathway to higher profitability” is one way to handle financial losses from Medicare Patients. The article explained that hospitals must focus on sharpening “their analytics to identify potential cost-reduction opportunities that apply to all patients, not just their Medicare patients.”

Data is key to meeting the challenges of an evolving healthcare system. Attainia’s PREDICT software uses simple healthcare analytic dashboards to help hospitals create multi-year replacement plans by showing strategic views into aggregated capital across all construction projects, including those managed by consulting partners, and annual capital equipment requests. PREDICT helps unite departments in the budgeting process by ensuring each department can identify current and future replacement capital in a single software. Users can quickly determine and enforce contract compliance and easily track changes to equipment lists, budget variation and other variables all in one place. Planners can view accurate, up-to-date medical equipment specifications, decreasing expensive change orders. Additionally, running all equipment requests through one solution enables planners to leverage all equipment requests from routine replacement, construction, and renovation to maximize volume discounts with suppliers and group purchasing organizations. Contact us today to learn more about how PREDICT can help your organization reap the benefits of data analysis.