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Uncovering opportunities that drive out unnecessary costs is not a simple project. Internal cultural barriers can impede progress. These conflicts need to be identified and resolved. Because of them, some healthcare organizations have yet to research and develop an organization-wide asset management strategy. Yet for many others, substantial savings have resulted from implementing one.

For example, members of a regional network participating in a customized asset management program have saved more than $1.5 million over a five-year period by doing so – and these are smaller, mainly rural facilities. Many similar successes can be cited for large urban healthcare providers as well.

An obstacle to developing an asset management program may be the need for a clear definition of options for equipment purchase and replacement and for maintenance for the lifecycle of this equipment. These options can include maintaining equipment via an
in-house engineering group or a multi-vendor program or using a time-and-materials approach. A clinically viable and cost-effective solution can encompass all three.

One barrier may be that the organization-wide picture is obscured by
internal politics and departmental isolation. In such situations, a facility-wide-oriented asset management "quarterback" is called for. Many times, departments manage their own clinical equipment so that implementing a facility-wide total cost-management program is a comprehensive task. These independent departments often include imaging, lab, surgery, cardiology and oncology, all of which stand to benefit significantly from a facility-wide asset management strategy. This insures a systematic, uniform approach as applied consistently across departmental lines.

Another reason facility-wide asset management needs to be prioritized is that, in the past, with emphasis on productivity and supply chain cost reduction, asset management has simply been overlooked. With costs scattered throughout various departments, it has been difficult to evaluate their improvement potential. An objective system in place is needed to identify them, otherwise the assumption may be accepted that "we’re doing a good job," despite lack of verification.

To be effective, asset management must be long-term focused and value-driven. An organization must not concentrate just on cost, but on the total picture.

For example, if the maintenance budget is reduced without changing related aspects of business practice, operating and financial results are likely to be temporary and fall short of expectations.

Having upper management understand and convey that there are opportunities for improvement and provide direction and long-term support is essential. An organization needs to realize that these opportunities exist. Obstacles can include such factors as decentralized information, lack of long-term strategy, territorial bias and a false sense that there is no opportunity to improve.

Sometimes "professional courtesy" from other managers perpetuates this condition. This may stem from respect for departmental boundaries or from fear of revealing a lack of expertise or from a false sense of confidence in a status quo position. Whatever the reason, meaningful change will be limited or not occur at all unless an operational and financial shortfall is uncovered and the cost of doing nothing becomes apparent.

There are many forms of resistance to change, including the myth that people don’t like change. In reality, however, being part of the solution usually motivates people to bring about beneficial change.

Another reason that some cost management plans fail is their focus on cost-cutting rather than overall financial and operational results. Such approaches leave the status quo untouched and omit opportunities to save money by investing money. Some asset management improvements initially may increase costs, either minimally to substantially, depending on the size of the facility, the scope of the program and other variables that differ from case to case. So when budgets are squeezed, performance improvement suggestions that carry a price tag may be ignored – even though they provide value beyond the initial "purchase price." In cases where the change involves investment or is associated with risk, there is often a reluctance to question the status quo.

To help assess the need for a capital asset management approach, ask:

1. Do we have a process in place to objectively measure change and costs?

2. If we do not evaluate current operations, how can we tell if there is no opportunity to improve and what impact could be derived?

3. Do our management reports trigger action or merely record past performance?

4. Do our organization-wide goals, short-term and long-term, support our overall asset management
initiatives?

5. From acquisition to maintenance to equipment replacement planning, where are the significant opportunities to reduce capital and operating expenses?

Costs can be reduced only when they are identified and understood. What precise value to the facility is added by that cost? Is there an alternative? How does it compare? How can resources continue to contribute value to the organization, but at a reduced cost? Without the ability to benchmark costs and make an objective analysis, opportunity to improve is sharply limited.

Failure to implement an effective asset management program can result in:

• Overpaying for maintenance and
repairs.

• Failing to take advantage of discounts in place.

• Increasing budgets on best-guess
estimates.

• Rising variable costs.

• Reactive rather than proactive
management.

• Increasing costs of reliability.

The rule-of-thumb is that, for every $1 million in new investments in technology capital equipment, the healthcare organization will incur approximately $75,000 to $100,000 in new maintenance and operating expenses the year after warranties expire.

For a $5 million capital equipment budget in 2007, this translates to nearly $500,000 in added operating expenses the next year, along with added depreciation. Many CFOs already have started to take notice.

By a process of discovery and analysis, management can begin to develop organization-wide strategies to drive costs down or out. Though some organizations at first may feel that their asset management program cannot be improved, digging deeper they may identify service as well as cost issues. Going further still, they can uncover all costs for equipment maintenance and repairs and assess whether current targets for improved financial performance fully reflect the potential for savings.

After the discovery and analysis groundwork is completed, an organization-wide plan with appropriate goals and internal control can be implemented. Turning asset management responsibilities over to service providers does not provide a true asset management program. A complete program must be based on internal control and include objective measurement of results. Such a program will:

• Define and share targets.

• Detail starting points and goals.

• Assure that targets for improved financial performance fully reflect the potential for reducing costs.

• Identify the alternatives.

• Challenge the status quo.

Most of us would not imagine driving from Florida to Oregon without a roadmap. Lack of a map and directions would increase our costs, time and frustration. Similarly, organizations launching an asset management program must first define where they are and where they want to be.

Reliance on budgets can prove ineffective when it comes to controlling costs. Typically, budgets reflect the status quo. However, unlike some industries, healthcare is in constant change, adapting and rearranging itself to satisfy community needs, legislation, regulation and patient care. Reliance on budgets under these unpredictable conditions is at best ineffective when it comes to monitoring and controlling costs without sacrificing quality.

Healthcare management principles recognize that cost is a fundamental issue; costs impact the financial health of the organization. This requires every department to have a framework in sync with an organization-wide strategy to reduce and control costs.

Hospitals are increasing their attention to asset management in order to improve financial and operational performance as well as quality patient care. They recognize that increasing investments in technology will impact their capital outlay, which translates into subsequent large increases in operating expenses. And they know that reducing non-labor costs is critical to freeing up needed capital and to improving bottom-line performance.