Capital Project Solutions – October 2013
The Realized Impacts of Healthcare Reform on Your Capital Implementation Strategy By: Steve Higgs, Senior Vice President
This is not your father’s healthcare system! As we move further into the implementation of the Patient Protection and Affordable Care Act (PPACA), we still cannot predict the outcome of this massive Federal undertaking. Volumes are soft and use rates are down in most areas of the country.
Depending on your
perspective, the PPACA may or may not be the causation of these outcomes. Regardless, the trends toward lower utilization and the desire to reduce healthcare consumption have every healthcare system focused on maximizing value while reducing waste. The need to keep operating costs low have had a demonstrable affect on decreased capital investment over the past several years. Dollars are being stretched more than ever and resources available for facility projects are becoming a smaller piece of the pie. While larger institutions have ongoing capital projects to meet the needs of their internal and external customers, all healthcare systems must consistently and strategically reinvest in facility infrastructure and new business ventures to remain in the game. As healthcare systems position themselves to remain competitive while adapting to the ever-changing technological advances in the market, they are continually looking for ways to be more efficient and effective in the Capital Delivery process. While everyone’s definition of success may be different, the guiding principles for a successful Capital Facility Program can be boiled down to a few concepts:
Scope Driven Program – Only build what is required
Best Practices – Maximize operational output
Consistent Schedule – Speed to market
Predictable Budget Outcomes – No surprises
Lowest Cost Product – Maximize value
Feedback on Outcomes – Continuous improvement process
1
Capital Project Solutions – October 2013
Healthcare providers are goal and metric driven; it is in their DNA. To achieve any or all of the above desired outcomes, an inward and honest organizational assessment of the facilities team is required. While some tough questions will need honest answers, having a structured process and approach should increase the opportunity to achieve better results. Where to Begin? The first step in assessing your Capital Implementation Strategy is to assess the current state of affairs. However, prior to beginning, a clear vision on the impetus to change must be articulated. Healthcare systems can expect to reinvest all of their depreciated capital over the life of a facility’s existence without accounting for growth. This capital must be deployed to meet the local needs of the community while embracing the need to remain solvent in a lower reimbursement model.
To be most effective, creating a
sense of urgency within the organization to critically evaluate itself and prepare for the proper adaptation to market influences is a must. So, while you may have never quantified the success of your Capital Implementation Strategy, the process of planning, allocating and implementing your capital are likely already occurring within your organization today.
Only by looking
objectively at the organizational structure of your facilities department can an initial baseline be set and the analyses of current state begin. Some of the quantifiable data that should be gathered, quantified and analyzed is as follows:
Quantity of capital projects
Type of capital projects
o
Inpatient
o
Outpatient
o
Renovation vs. new construction
o
Scale (budget and spend annually)
Current staff compliment 2
Capital Project Solutions – October 2013
o
Full time & part time staff dedicated to the process
In-house staff
Outsourced staff
Facilities and maintenance staff input
o
Skill set of the staff
o
Geographic location of the staff
Budget for the capital planning & implementation process
Akin to the development of a strategic master facility plan, analysis of the capacity and utilization of the current implementation staffing against volume and type of work can shed some insightful light on the current state.
Of course the effectiveness and
outcomes are influenced by some of the following factors:
Scope of services provided
Span of control
Planning and support personnel
Tools and processes
Cohesiveness of management process and team structure
In addition to the quantifiable data, a comprehensive assessment should also include review of items that are more subjective. There are several ways to tackle this review. Interviewing and surveying the key stakeholders involved in the planning, design and implementation of capital projects and programs can yield extremely valuable information.
Structured correctly, this
approach can provide insight regarding social norms and constraints that are affecting processes and outcomes. For larger health systems, this process can also identify current best practices being employed in one region of the system that can be further tapped to bring value across the system. A strong snapshot of the processes in place can also build continuity around those areas that are already working well. An additional way to gather some subjective but important data on the current state is by completing a simple SWOT Analysis. By identifying your current organization’s internal strengths and weaknesses and the external opportunities and threats germane to the capital facility delivery process, you can begin to see more 3
Capital Project Solutions – October 2013
clearly the current gaps and thus influence the future state direction. If you are completing this assessment with a team of key stakeholders, this process can really begin building a strong consensus on the current state of affairs as well as develop the critical success factors moving forward. If change is inevitable, building consensus along the journey is paramount to success. My inventory is complete, now what? Identifying and validating the existing structure, volumes and capacities will allow for some benchmark analysis to properly align resources with needs. While benchmark data in healthcare is rampant, it is more readily available for clinical, financial and operational needs as opposed to facility needs. Benchmarks for the capital planning process are wide and varied, particularly for metrics
around
optimal
staffing
models
to
support
the
implementation. Therefore, benchmarks should be viewed with caution and only a starting point to your organizational model. As you track your progress and success, changes will inevitably need to be made to the model. Your initial future state focus should on how to effectively support the Mission and Vision of your organization and achieve the goals stated above. What services should we provide in-house? outsourced?
What should be
What are the processes in place to ensure
measurable success?
How can I take advantage of group and
centralized purchasing? What should I do to maximize the value for my organization? Answers to these questions are not easy to quantify and will take time to fully evaluate. Before jumping into processes, try tackling the span of control question. It has been well documented by the National Institute of Building Sciences Academy for Healthcare Infrastructure that almost 90% of the total life cost of a facility is the ongoing operations costs (labor, supplies, energy), not the initial first cost investment in the facility improvement. These operational costs typically include labor, supplies, energy consumption and infrastructure. Given that, an organization should place great effort into ensuring that capital investments are scope driven. In general, a capital investment should: 4
Capital Project Solutions – October 2013
1) Create a positive ROI, 2) Be a required infrastructure improvement, or 3) Meet the core mission of the organization. Prior to the passage of the PPACA and during better economic times, these simple criteria for capital investment were not always followed. Gone though are the days of spending facility capital based on intuition, anecdote and simple desire. As you better ascertain your ability to properly plan and development capital programs, ensure future state planning is rooted in rigorous analysis and strategy.
Asking yourself, “How does a project
become a project?” should be accompanied by a process (the answer) that is data driven and outcome based.
By that same
token, the span of control and the scope of services provided by your organization to implement a capital program should also be scrutinized.
Buoyed by the development of a scope driven
process, the implementation of the program should focus on management of the scope, schedule, budget and risk. In times past, healthcare organizations often provided in-house design and construction services. Some even employed inhouse electricians, plumbers and painters. These models are seen as much less sustainable in a lean healthcare world. Having the proper management organization in place is the key to developing and streamlining
processes
improvements.
It
and/or
starts
process
with
a
clear
understanding of the internal team and the development descriptions
of that
comprehensive
job
define
and
duties
expectations for each individual’s role. The accompanying
chart
displays
the
organizational structure for a large health system
with
a
robust
capital
program
indicating functional responsibility and lines of communication. Running
parallel
to
the
internal
team
organization should be a solid inventory of tools 5
Capital Project Solutions – October 2013
and processes. Having the best tools in the world will not help your team if they are not properly trained and/or have not “bought in” to the use of them. In addition, it is critical to evaluate and understand the following reporting requirements:
Capital Projects Approval Process
Procurement and Standards Process
Workflow or Process Models
Master Program Budget Reporting
Master Program Schedule Reporting
Departmental and Operating Budgeting
Cash Flow Projections for Projects
As a part of your future state success, developing Standards around your typical inpatient and ambulatory models should be considered. This could aide in the speed of approval, design and construction processes. In addition, it could bring additional buying power that lowers the first cost investment. Consideration should also be given to standardizing professional service and construction management contracts to increase efficiency and manage effectively.
The Impact of Technology As previously mentioned, more and more healthcare owners have to adapt to the ever-changing advances in the market place. This is also true in capital program management software. Gone are the days of the overwhelming Excel spreadsheets that contained cell and data entry errors and were hard to maintain and update. Many systems now have migrated to web based project management software to manage their capital programs. However, given the complexity and financial commitment of these programs, it is equally important to make sure that all stakeholders are using it to the fullest extent possible. The functionality of this type of software is too vast to review in this article and the owner can only determine
its
management
usefulness. software
However,
platform,
the
when
evaluating
following
should
a be
considered:
6
Capital Project Solutions – October 2013
Is there clear understanding of the capabilities of the program/ software?
Are there standard reports that are generated from the program/software?
Is there adequate budget and schedule information
modules?
Can this software integrate with other centralized
functions such as finance, accounting, purchasing and facility maintenance?
It’s All About Value Using the vernacular of the lean movement, it is all about maximizing value and eliminating waste. This rolls easily of the tongue, but can be difficult to make tangible. The new era of healthcare has focused our efforts on population health and wellness. Knowing that our facilities are a tactic to support our strategy and vision, we must adapt to these changing times at every level of the organization. In this new reality, healthcare organizations must embrace the need to consolidate, streamline and decrease variability in order to bring competitive advantages to each of their respective markets.
7