Equipment Budget Wizardry: Planning for New Technology
In today's consumer-driven market, patients are shopping for healthcare, just as 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.
Patients are increasingly more educated and discerning about their healthcare options. Technology plays an important part in the ways that patients discern how hospitals are improving throughput, access to information, and overall comfort. New technology also gives hospital staff members opportunities for new and improved methods of patient care delivery and provides hospitals with greater efficiency, performance, and reliability.
There's no question, however, that the cost of this medical equipment can be overwhelming. These costs have traditionally represented 10 to 40% of a healthcare project budget—and the complexity of current technology and equipment can increase that percentage significantly. Whether the new project is a unit renovation, an addition, or a replacement hospital, the secret to success is making realistic budget decisions.
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. The ability to be realistic about this can ease the angst of trying to predict which of the latest-and-greatest equipment is necessary. Flexibility of design, where possible, will enable some future technology changes, while careful spending of contingency funds, or future Capital Committee requests, may be needed to accommodate other changes. Throughout this process, a unified team effort is required to create the budget, track it, and stick to it, because a healthy respect for the approved budget rules the day.
Budget compliance begins with asking the right questions:
Is this project driven by a need for expansion or the addition of new service lines that 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, increasing medication safety, or adopting 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. To do this, one has to:
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 and publications to manufacturers' representatives and group purchasing organizations.
Create a conceptual budget. Created during the schematic phase or even earlier, the conceptual budget is the cornerstone of the final equipment budget. From the beginning, this budget itemizes projected costs by department—sometimes by floor or service line—and identifies the big-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. This involves:
Employing tips, timing, and tools. A Budget Tracking Tool is used to compare current costs with original assumptions, starting with the conceptual budget, and is updated at various project milestones, such as schematic sign-off, 50% design development, 100% design development, and final construction documentation; however, other milestones, such as board or steering committee meetings, can also be helpful markers.
A budget tracking tool, starting with the conceptual budget, is also key. As the project moves forward, the tracking tool is used to compare current costs with original assumptions, which makes it much easier to pinpoint the causes of discrepancies and to limit negative variances when they occur (figure 1).
An example of a budget tracking tool
The tracking tool contains clarification and progress notes 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 if equipment responsibilities are reassigned. Sometimes the cost of equipment is shifted to the contractor's budget (e.g., scrub sinks, ceiling lifts) or to the furniture budget (e.g., patient beds).
List versus discount. With the exception of proprietary technology, hospitals have access to many 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.
Allowing 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. Each allowance specifies the category or type of equipment, along with the projected costs to purchase them. Since these costs can escalate at alarming rates, it is essential to track them closely.
Cost reduction strategies
Keeping costs on track during the course of a project is one of the biggest and most common challenges faced by project managers. Here are some simple steps that can help achieve this:
Reuse sensibly. Using viable, existing equipment can reduce costs significantly and even fund investments in new technologies if the equipment works well and people actually use it. However, it's good to keep in mind that existing equipment can incur relocation and reinstallation costs—and when it must be moved, valuable time is spent off-line.
Standardize for savings. Vendors welcome big purchases because it gives them a predictable volume of sales. Standardization of equipment, or of manufacturer, can translate into measurable budget savings for a hospital, as well as facilitate opportunities for manufacturer-sponsored training, support, and research programs.
Negotiate vigorously. 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.
Shop around. Loyalty to a brand or to an attentive sales representative has its comforts but also has its risks, even when 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 trend reports, and research. The cost of membership can often be worth the investment.
When all else fails, it is important to investigate alternative funding sources to solve a budget dilemma, such as:
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 rapidly changing technology
Rent 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, sometimes 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 patients, as well as for hospitals, state-of-the-art technology symbolizes an organization's commitment to quality care and safety. The challenge of affording such equipment, however, can seem overwhelming. It doesn't have to be. Ultimately, equipment budget wizardry does not require a crystal ball or a magic wand. All it takes is excellent preparation, constant vigilance, and a few proven tricks of the trade. HD
Gloria A. Cascarino is Director of Medical Equipment Planning, Francis Cauffman Architects.
The Upgrade Clause
An upgrade clause can be built into a quote for major equipment, helping control for the cost of a change in technology. Often major equipment is quoted by the vendor during the design phase, when actual purchase and installation may happen years later. The upgrade clause caps the cost of upgrading the quoted equipment; it helps the hospital to worry less about being locked into technology that might be obsolete by the time of opening the new facility and gives it a frame of reference for potential costs of emerging technology.
GPO Benefits: An Example
Premier, a GPO, provided contract compliance data to Geisinger Health System for the fit-out of their Woodbine Surgical Center (figure 2). They reviewed the equipment list, matched the selections with contracts, and quantified even greater savings achievable with more contract participation. Geisinger was able to make more informed decisions and save considerable money with this assistance.
For many patients, as well as for hospitals, state-of-the-art technology symbolizes an organization's commitment to quality care and safety