Many supply chain executives and managers complain that their ability to impact the acquisition of capital equipment is hampered by their lack of visibility to impending purchases.

By the time they are asked to get involved, commitments have been made, initial negotiations have occurred, and it’s too late to prevent mistakes which could negatively impact the final selection and purchase price. Suppliers are often complicit in this process as they will bypass materials management and call directly on clinical managers, effectively tying the hands of supply chain managers.

During the 1990s this process reflected the thinking of the times, which was based on a transactional model. Each major equipment acquisition was treated as a purchase in and of itself and the main benchmark for success was ROI (return on investment).

Ongoing blending of technology with clinical systems and new/pending regulations that will significantly affect a hospital’s revenue have led healthcare organizations to look at capital acquisitions in a global context. Today’s financial benchmark is ROA (return on assets) – defined as profits over total assets.

The POA (Present on Admission) component of the Deficit Reduction Act 2005 (DRA05) is one example of regulation directly affecting the acute care market. POA requires hospitals to set evidence-based diagnosis on admission rather than discharge (the current process) within the first 24 hours of a patient’s admission.

The net impact of this change is that hospitals have 24 hours to get it right. They must provide treatment with the highest levels of quality and positive outcomes and be able to document the entire process for reimbursement.

Many hospitals are looking to equipment and technology to help meet these challenges. In this environment, the old model of measuring ROI is no longer effective. Equipment must improve the operational efficiencies and outcomes consistent with providing effective treatment throughout the continuum of care. Digital imaging equipment such as picture archiving and communication systems (PACS) is a good example. Implementing multimillion-dollar PACS usually cannot be justified based on ROI. However, if taking advantage of the efficiencies gained by using digital imaging equipment capable of communicating directly with a hospital’s electronic medical record system (EMR) allows for faster diagnosis and communication of results while providing the necessary documentation of the process, the acquisition can be justified using the ROA model.

Some hospitals may have to acquire new equipment and/or technologies just to survive. While they may never achieve a financial return on individual equipment investments, smart acquisitions, which provide a positive impact on their operational efficiency, can also positively affect their financial situation. The right acquisitions will make them more competitive and increase their profitability.

This new method for justifying equipment acquisitions requires all hospital staff to take a more global view of the impact a new system will have on the continuum of care. Supply chain managers are uniquely qualified to support the acquisition of equipment using the ROA model to justify its impact on the continuum. For years, a more global view of the supply chain has been required to drive down supply costs. Now more than ever, supply chain managers need to inject themselves into their hospital’s process to justify the acquisition of new equipment.

Clinical preference, which supports a transactional method of acquiring equipment, can no longer be the deciding factor when determining whether or not to purchase.

Physician preference, which has historically been one of the primary decision factors for equipment acquisitions, if not the primary factor, was indicated by recently surveyed VHA members to be less important than factors such as product superiority, standardization and price. Superior products, which support a hospital’s standardization programs, can positively impact the operational cost efficiencies required in a continuum environment.

Supply chain managers who have already taken the lead in driving down supply costs should also take the lead in making sure that equipment acquisitions support their hospital’s goals of providing efficient, high quality healthcare. They should use their communication conduits with clinical departments to educate staff on the need to make sure that transactional buying of equipment does not occur.

Take the time to research the availability of software systems or tools which will provide purchasing staff with the earliest visibility to impending equipment acquisitions. Preferably, these tools would provide visibility during the planning stage when there is still an opportunity to make changes to positively impact the outcome of the acquisition.

Measurements should be created to assess the ROA of any equipment requests. The following are examples of the types of questions which should be asked prior to any new equipment purchase.

1. Will this new system help diagnose a patient faster?

2. Does the equipment communicate with existing systems?

3. Does the new equipment reduce the operational cost associated with equipment it may be replacing?

4. Will we have to add staff to operate the new system?

5. Can we reduce staff with this acquisition?

6. Does the system document its performance for quality measurement?

7. Will this equipment require the use of additional or more expensive supplies to function?

POA is one of several regulations already enacted or in the process of being enacted. The time to implement changes in how you acquire equipment is now. Leverage your expertise in the supply chain to make sure your hospital survives and profits while delivering the highest levels of healthcare.

Niklaus Fincher serves as senior director of capital asset services for VHA Inc. where he leads the strategy and program development for VHA member facilities. Fincher has more than 29 years of medical capital equipment experience as a clinician, consultant, RIS/PACS implementation manager, medical equipment planner, group purchasing contractor and strategic planning advisor. Fincher also serves as a member of HPN’s editorial advisory board.