There's two parts one due tomorrow Wednesday Part II due Sunday 5/1
TECHNOLOGY Budgeting best practices Controlling medical equipment spending for the life of a project BY TERRY ESQUIBELL AND KELLY SPIVEY Key to the success of a health care 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. This requires careful consideration of a number of important variables such as the sophistication of the equipment being specified, the accuracy of cost estimates, the needs and desires of the various stakeholders and the frequency of change orders, to name a few. Successful professionals will take a for mal approach to ensuring that these and other concerns are properly addressed. Budget development Historically, medical equipment budgets for health care construction projects were determined as a percentage of project ed constmction cost. The industry now recognizes that two hospitals with the same square footage can offer completely different services, resulting in significant differences in the cost for owner-furnished medical equipment. A more accurate method than basing a budget on square footage is basing it on a space program. But, even then, the budget may vary significantly, depending on a variety of factors. A fundamental concept in developing the medical equipment budget is the A large teaching facility's vision may include specialized technology such as PET, while a critical access hospital's vision may focus more on procedure volume. budget-setter's definition of medical equip ment — not just categories of devices but whether factors such as relocation costs, equipment upgrades, leases, transition rentals, information technology (IT) inte grations and ancillary expenses (Le., elec tronic health record interoperability) will be part of the medical equipment budget. Additionally, the project delivery method (i.e., design-build, integrated project delivery or design-bid-build) may impact the procurement process and the final cost of medical equipment. On a design-build project, for instance, medical equipment that typically is considered owner-furnished may be furnished by the contractor. The construction schedule also can impact the cost of medical equipment. For example, in renovation or expansion proj ects, phasing can impact the warehousing requirements, equipment discounting and the practicality of relocating existing equip ment versus purchasing new equipment. After all these issues are considered, the health care organization will deter mine whether the budget should include additional costs such as tax, freight, inflation, group purchasing organization (GPO) discounting, insurance for stored equipment, warehousing costs, instal lation, transition planning and various contingencies. 22 // JANUARY 2015 w w w .H F M m a g a z in e .c o m P H O TO C O U R TE S Y O F S IE M E N S M E D IC A L S O LU TI O N S R eduction s tra teg ies to align equ ipm ent budge ts and cos ts Cost estimate r The cost estimate encompasses many of the same or similar parameters as the budget as well as clinical input, design-driven decisions, supply chain considerations and other factors. The best process to assemble this information is to gain input through a series of meetings. Pre-design v is ion ing sessions. Before design meetings begin, the organization should document the technology vision for the facility. It is important that all participants in the design process (e.g., administrative personnel, clinical direc tors and physicians) understand and support the organization's vision. A large, urban teaching or research facility might include cutting-edge medical equipment or specialized technology such as positron emission tomography (PET), teaching sur gical suites, interoperative surgical suites or research laboratories. In other circum stances, a critical access hospital's market may not require PET, but the organization may want to consider technologies such as telemedicine. If an organization is considering imple menting a Lean program, medical equip ment planning for the new facility can support that effort. Likewise, if an organi zation has not already established medical equipment standards, a new project is an ideal opportunity to start. These programs may allow the health care organization to realize better pricing. Additionally, mainte nance and staff training may be reduced. The project team should begin by identifying the budget and cost-estimate decision-makers and ask them to estab lish who is carrying what costs in their budgets. For instance, picture archiving and communication system display moni tors may be carried in the IT cost estimate or in the medical equipment estimate. The team also should meet with supply chain and purchasing early in the design process to understand GPO contracts, standards, leased and no-charge items and discounting expectations. The team also should discuss who will be responsible for installing no-charge items like glove boxes and sharps con tainers. Vendors can assume this role, but contractors might be the better choice because they are involved in mock-ups and understand the planning of the room and placement. Vendors inadvertently may place items in the wrong position and cause reworking of walls. A hypothetical design and construction project can provide several good examples of savings that m ight be achieved through careful control of the medical equipment specification and procurement process. One example would be a hospital that embarked on a replacement facility and expected substantial completion in two years. At the start of the project, the facility was in the fourth year of a five- year bed replacement program. By the end of design, the initial $20 m illion medical equipment budget (based on 20 percent of construction cost) was $1 .5 m illion lower than the final cost estimate of $21 .5 million. Because additional funding was not an option, the following reduction strate gies were identified: • Purchasing professionals were asked to further qualify the cost estimate with the assistance of the organization’s group purchasing organization (GPO). This identified a potential savings of $225 ,000 if all purchase orders were placed within the next 10 months. While lim itations on cash flow and other fac tors made this approach impractical, the potential savings from the qualification was still $76,000. • All departments were asked to reconsider relocating equipment that might be beyond its normal life expec tancy but still functioning properly. This resulted in a cost-estimate reduction of $175 ,000 . • Booms and lights planned for six operating rooms (ORs) remained in the project, but the implementation of OR integration was delayed until after move- in. This saved $600,000 . • The replacement of patient room beds was delayed by two years for a cost Capital purchases already approved and capital budgets in the years lead ing up to project completion should be considered during project design to help alleviate budget shortfalls. Similarly, it is important to determine whether the proj- Medical equipment cost estimate over life of the project $5M $15M $25M SOURCE: GBA savings of $725 ,000 . These reductions (excluding the potential savings identified by the GPO of $76,000) lowered the cost estimate to $20 m illion, keeping it in line with the original budget for medical equipment. The owner had to relocate more equipment than planned and accept delays in bed replacement and imple mentation of OR integration, but these delays made it possible for the project to move forward. Establishing an in itial medical equip ment budget is an important first step. The second step should be developing a detailed cost estimate for medical equipment. This step will determine if the initial budget is in line with the own er’s objectives and identify problems or opportunities that might exist. ■ ect is relocating equipment from another facility. The decision-makers should estab lish which categories of equipment should be considered for relocation. C lin ica l user meetings. Medical technol ogy user involvement is essential to devel- w w w . H F M m a g a z in e . c o m JANUARY 2015 // 23 T E C H N O L O G Y // B U D G E T IN G B E S T P R A C T IC E S oping a reliable cost estimate. The right clinicians and staff members should be brought to the design and planning meet ings. For example, a nurse might know which features of an automated medication dispenser are needed but not know which particular model is appropriate or how it is acquired. Thus, input from finance, IT and pharmacy are critical to selection, procure ment and implementation. Clinical staff can help to identify proj ect-specific factors such as marketing, clinical applications, government regula tions, test or procedure volumes, patient demographics and staff preferences. Most importantly, the project team will be sure all equipment and systems meet clinical needs and program criteria. The planning and cost-estimating pro cess is a precursor to the procurement process and should result in clinical specifics. The more clinical specifics iden tified in the meetings, the more accurate and manageable the cost estimate. For example, a cost estimate for a 3-D ultra sound for fetal studies requiring five trans ducers that is based on discussions with the clinical staff is more exact than simply estimating a diagnostic ultrasound. Specif ics also can help to identify items that are being added to the project that were not part of the original scope. For instance, the reference to fetal studies might be a red flag that the equipment is beyond the project parameters. Providing specifics also can help to identify wish list items. However, restraint should be exercised because a construc tion project sometimes may be viewed by staff as an opportunity to get items they requested in previous capital budgets but were denied. Wish-list items should be considered only after all the medical equipment needed to meet clinical and program goals has been purchased. Leadership meetings. In addition to clinical input, the team should meet with key leadership to address possibilities of future change in procedures,