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So Many Projects, So Little Money

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With America's healthcare construction spree in full swing, every capital investment request must be getting the green light, right?Wrong. As every hospital chief financial officer knows, the list of capital proposals exceeds the limits of the pocketbook every year. As the nation's aging hospital infrastructure attempts to meet an increasing demand for services, deciding how to spend scarce capital dollars has never been more difficult. And with members of the medical staff emerging as potential competitors and neighboring hospitals trying to grab market share as a survival strategy, every capital decision looms large.While most hospitals employ an annual process for capital allocation, many of the decisions behind the record $23 billion in hospital facility spending last year were made on the fly, says Chuck Hodian, vice president at VFA Inc., which sells capital planning software and consulting services to hospitals. "Some hospitals use Post It notes on the boss' desk, saying, 'I saw this today. It's broken,'" he says.More sophisticated hospitals maintain a database of facility information, including the value and conditions of buildings and equipment, to help inform capital decisions. At Beth Israel Deaconess Medical Center in Boston, for example, all 3.5 million square feet of facility space-and the major equipment the buildings contain-are assessed by an outside consultant every four to five years, says Robert Bucey, director of engineering. The database is continually updated, allowing for all maintenance, upgrade and replacement needs to be reviewed simultaneously.Each year, the 585-licensed-bed medical center prioritizes its capital needs, and Bucey and his colleagues use that list as one source of input to make investment recommendations to top management. There's no shortage of others who want their say, as well. "Doctors and the clinical side of the hospital think in one way, and engineering and facilities think in a different way," Hodian says. "There is always some doctor saying he needs a new MRI room when there are patient bed areas that have cracked walls and leaky ceilings."In fact, an ongoing challenge is deciding among competing proposals to invest in technology or facilities that promise high-profit revenue streams. Todd W. Skulte, a general manager at GE Healthcare Financial Services, offers two rules of thumb for evaluating such proposals:

  • Joint ventures are better than no ventures. If physicians are threatening to become competitors unless capital investments are made, find a way to make them compatriots. "What I hear frequently from CFOs is, 'I'd rather have 50 percent of something than 100 percent of nothing,'" he says.


  • Go for the best return on investment. With reimbursement rates being squeezed on so many fronts, profit-making opportunities must be snatched. "If that linear accelerator is going to bring in the most money, it's the smartest decision," Skulte says.
Evaluating such opportunities is easier for CFOs who recognize which leaky ceilings can wait another year-and which ones cannot."If they don't have that comprehensive understanding of what's going on, then it really comes down to the squeaky wheel and the power bases fighting against each other," Hodian says.-Lola Butcher