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...

TECHNOLOGY
Budgeting
est 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
ecognizes 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
udget 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.
udget-setter's definition of medical equip­
ment — not just categories of devices but
whether factors such as relocation costs,
equipment upgrades, leases, transition
entals, information technology (IT) inte­
grations and ancillary expenses (Le., elec­
tronic health record interoperability) will
e 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
equirements, 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.
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R eduction s tra teg ies to align
equ ipm ent budge ts and cos ts
Cost estimate
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,
u
an 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
ealize 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 ca
ying what costs in their
udgets. For instance, picture archiving
and communication system display moni­
tors may be ca
ied 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
e 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
ecause 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
econsider relocating equipment that
might be beyond its normal life expec­
tancy but still functioning properly. This
esulted 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
eds 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
e 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
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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
ought 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
eing added to the project that were not
part of the original scope. For instance,
the reference to fetal studies might be a
ed 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
equested in previous capital budgets
ut were denied. Wish-list items should
e 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,