ith a continuous influx of
patients and with aging facilities and infrastructure, healthcare facilities
are experiencing continued "wear and tear"— as soon as one system is fixed,
another needs to be replaced and so on. One-third of hospital chief
financial officers reported to the Healthcare Financial Management
Association (HFMA) that their hospitals were in worse physical condition now
than they were 10 years ago, and almost half reported that their
infrastructures were deteriorating faster than they could make capital
improvements.
After several years of consolidation and underfunding,
healthcare providers were once again planning to invest in capital spending
to meet the need for increased bed capacity and technology upgrades.
However, with recent economic events, many of those plans are on hold.
According to HFMA’s Healthcare Finance Outlook 2008-2013 Report, the capital
spending growth rate remains behind the growth rate for total operating
expense, suggesting the need for capital investment spending may grow while
actual spending shrinks.
Capital challenges
Controlling ongoing capital spending against a planned
budget requires a reconciled view of overall capital spending that many
organizations lack. Manual processes for tracking planned and actual
expenses don’t deliver a real-time view of the spending process, allowing
unplanned expenses to crop up. These unplanned expenses consume up to 20
percent of capital expenditures in many healthcare organizations.
Take, for example, Wellmont Health System. Wellmont is a
premier healthcare provider serving Northeast Tennessee and Southwest
Virginia. The organization spends $30 to $40 million each year on its
facilities, which include eight acute-care facilities that encompass more
than 1,300 inpatient beds. With three comprehensive cancer centers and two
major trauma centers, the organization also manages 53 physician offices and
serves 140 physician partners. Wellmont’s building portfolio spans
approximately 1.3 million square feet.
Due to the extensive capital needs across the Wellmont
system, we faced several challenges in the capital planning group. Wellmont
lacked a defined process for validating and tracking the spend related to
capital projects, as well as the ability to compare budgeted dollars to the
actual amount spent. Construction and renovation projects – particularly
multi-year projects – frequently exceeded budget without a clear
explanation. And, with information residing in a variety of spreadsheets and
databases across the system, there was no visibility or oversight.
Spend management solution
Capital spend management systems can facilitate the
day-to-day tracking of planned and actual expenses and variances, providing
visibility to the various groups involved in the process and promoting
accountability. The ability to get a comprehensive picture of capital needs,
consistently prioritize those needs and monitor capital spending against
plan are some of the significant benefits healthcare organizations can
achieve by implementing software for capital spend management. But to fully
leverage these capabilities, the organization must begin with both a clear
view of its strategic goals and with the realization that a strategic
capital plan is a fluid document that needs ongoing review against those
objectives.
To transform the hodge-podge of databases and paper-based
reports that historically made effective capital spend management an
unmanageable task, Wellmont set out to obtain more accurate, reliable and
readily available information. In addition to comparing budget to actual
spend on projects, Wellmont also wanted real-time reporting on project
dollars spent versus available project dollars on a project-by-project
basis. This would help the system see the impact of different funding
scenarios and create optimal long-term capital plans. Having data in
multiple systems made it difficult to easily and accurately report on
spending related to a project as well as to track and report on outstanding
invoices.
Visibility into the general replacement budget for
facilities was also a concern. Dozens of spreadsheets with budget and spend
information made it difficult to run accurate, reliable reports. Another
challenge was to overcome an antiquated paper approval process in which
requisitioners never knew the status of their request – who had already
given their approval or whose desk it was on at any given moment.
Finally, there was no real opportunity for supply chain
employees to engage in the process, and they were left out of the loop on
most projects. Wellmont saw the benefits that effective supply chain
management could bring, such as negotiated cost savings, better forecasts
for spending and combined projects for bulk savings.
Sophisticated supply chain management is critically
important to every aspect of Wellmont’s success. For the system, having the
right tools in the right place at the right time and at the right price
enhances the safety of patients and staff, clinical outcomes, physician and
staff satisfaction, and overall financial strength of the system.
With this in mind, Wellmont selected VFA.spendManager as a
capital spend management solution. The hosted, Web-based solution provided
the organization with a convenient and structured environment so that all
stakeholders may document, forecast and track activities related to capital
expenditures.
Benefits of a centralized capital spend process
Wellmont’s finance department implemented a new systemwide
finance information system, bringing about changes in the revenue cycle and
supply chain management. System integration and process improvements focused
on centralizing financial data and utilizing the VFA.spendManager budget
creation, budget allocation and spend tracking capabilities to the fullest.
Now, Wellmont is realizing the benefits of having a
system-based structure rather than one spread out among individual
hospitals. Wellmont’s budget and spend data is now located in a centralized
database that allows everyone from end-users to managers access to real-time
information about the status of their projects. As a result, Wellmont is
able to plan, execute and accurately budget for large multi-year projects
and has a clearer view into all aspects of the capital budget cycle.
All of these successes are inviting greater participation
from supply chain managers. The centralization of purchasing allows for
product/vendor standardization, grouping of similar projects and an emphasis
on producing quality, reliable data that can be used for informed
decision-making. As a result, Wellmont’s supply chain has been able to
implement cost reduction projects totaling $6.5 million in annual
operational savings.
With the utilization of VFA.spendManager, Wellmont is
seamlessly executing its multi-year capital projects, has complete
visibility into overall capital spending and has gained a defined review and
approval process. Wellmont is ultimately realizing annual capital cost
savings of more than $5 million per year.