Hospital Execs, Get Strategic About Capital Expenditures

Jack Hobbs, for HealthLeaders Media, November 29, 2010

The nation’s health reform priorities have shifted in the time since President Obama signed the historic healthcare bill into law earlier this year. Access to care for millions of uninsured, expanded coverage for families under existing health plans and the removal of lifetime caps and other onerous insurance provisions are the jewels of Obama’s healthcare policy triumph.

Although no one is quite sure of the impact of the healthcare bill on the behavior of institutions, there will clearly continue to be downward pressure on them and a critical need to justify capital spending.

But controlling the cost of care and all the factors that drive cost up is still the elephant in the room when it comes to treating whatever ails Americans. Every dollar counts and every expenditure is subject to scrutiny in the business of medicine. That includes major capital investments in healthcare facilities, often the largest single expense incurred by healthcare providers in any given year.

These are decisions an institution simply cannot get wrong. Sticking with an outmoded and inefficient facility for even a few years too long will swamp an operating budget with huge maintenance and operational costs and more. Faulty allocation of capital in anticipation of growth without the benefit of a proper master plan can saddle an institution with a crushing debt load from which it may never recover.

You would rarely see a for-profit commercial or housing developer green light a project and its associated risk without a well-vetted pro-forma and proper due diligence. Yet healthcare providers, whose decisions have even more impact on a community, often proceed with a project based on a fraction of the information they really need.

In any industry or sector—be it commercial, educational or healthcare—capital investment decisions need to be strategically based with the end user in mind. In healthcare, it’s all about the patient. Indeed the underlying attitude is that the patient care mission is of singular importance no matter what the cost. But this well-meaning myopia often leads to misdirected decision making with missed opportunities for savings and long-term efficiency.

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