Without a rigorous value justification process, healthcare organizations literally purchase billions of dollars of capital equipment (new and used) annually to replace their old technology, maintain or improve their physical plant or start up new programs. In fact, based on my observation, most hospitals don’t even have a capital expenditure committee or technology value team in place to determine if their capital expenditure purchases are even needed, let alone value justified. Instead, most capital expenditure justifications are made behind closed doors of the administrative suite with the department head or chairperson that requested the equipment and without a formal process to weed out bloated capital budgets and feature rich non-conforming expenditures.

If you are serious about reducing your capital expenditures by 26 percent or more, here are three steps to make those savings happen:

A much better way to evaluate capital expenditures is to form a technology value team made up of clinical and non-clinical members who have no stake in the capital purchase being proposed so they can give senior management untainted and unvarnished opinions on the appropriateness of each purchase.

2. Start your capital purchasing
evaluation process early
Allow your technology value team to participate in your capital expenditure "vetting" process as early as possible, preferably when capital expenditures are submitted to the office of the vice president of finance for review. Let this committee or team financially justify and prioritize your hospital’s capital expenditures in consultation with the requesting departments, prior to submission to your finance committee for final approval. Naturally, your CFO or budget director would be the value team leader, so that he or she could tie together all the loose ends required to meet your capital budget policies and procedures.

3. Value justify all capital purchases with value analysis
Don’t accept that the requesting departments have all the answers and have looked at all of the possible functional alternatives available to your hospital. Make sure that value analysis tests are performed on all capital expenditures by your capital expenditure committee or technology value team, before any bid is sent to interested vendors or purchase orders are released.

Technology value team
in action
Prior to one of our clients establishing a technology value team at our direction, the president of this hospital, his CEO and his chief accountant would make all of the decisions on their $2 million technology budget annually with some input from their clinicians and department heads. They alone decided who got what, when and how, without truly understanding the requisitioner’s functional requirements, nuances or impact of their decisions on other department heads and managers! This closed door decision making system was slow, painful, time consuming, risk adverse, fraught with errors and savings neutral.

Once this client adopted the technology value team concept to make all of its technology purchase decisions, the hospital saved, on average, 26 percent annually on its technology budget – beyond price. Their value-based decision making process was faster, better, more cost effective and responsive to department head’s needs and desires than the prior closed door system. For example, a savings of $156,923 was achieved when, after a functional analysis conducted by one of the team’s project managers, they couldn’t value justify a $156,923 purchase of upgrades for the hospital’s laboratory information system. And $37,982.15 was saved on upgrades on the hospital’s pharmacy information system by restructuring the hospital’s medication administration process. On purchases of PCs, $7,926.35 was saved after a functional analysis found that 96 percent of the hospital’s staff only needs Microsoft basic software on their PCs versus every program that Microsoft has to offer.