The Fight for Facility Dollars

Posted on June 1, 2012

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A panel at last month’s BOMA MOB conference revealed just how difficult the hurdles are to win internal capital financing at a healthcare system these days.

With a capital budget of $900 million, Trinity Health reported their money is divided among three pots:  previous project commitments, “non-threshold” projects (<$2M), and projects greater than $2 million, or “threshold”. All threshold projects, whether replacement or strategic, go through a scored ranking system based on ROI, and a committee decides the winners.

Another panelist reported approval in their system must meet minimum requirements for quality, budget and a match to the ministry to receive funding allocation. However, money could not be spent before approval, and approval required:

  • Business plan
  • Schematic design
  • Project budget
  • Project schedule
  • Internal implementation team

Bon Secours was a third system and panelist and noted their funds were divided four ways: 

  1. Electronic health records – 30%
  2. Maintenance / replacement projects – 30%
  3. Strategic projects – 30%
  4. Contingency – 10%

Contingency was defined as something to catch the unexpected—emergencies, inflation, cost overruns, surprise opportunity—that can happen in a year.  This system is adding 150 physicians a year.

Two aspects stood out.  One, the fact that electronic health records (EHR) were eating away such a big chunk of capital—not a couple percent but 30%—of at least one major system’s budget. When this goes away, will there be another funding crisis to erode the budget?

And two, the approval processes themselves:  thorough and responsible on one level, yet slow and bureaucratic on another level. I heard more than once that today more frequent check-ins and adjustments to the market are necessary for financing, system needs and strategy. Gone are the days of the 5, 10 or 25 year master plans. This is consistent with the tenets espoused in the Fast Company “Generation Flux” article I have commented on recently.

I wonder if healthcare is currently built with the flex in its internal systems to handle deft market maneuvers, while at the same time being fiscally responsible. Are fiscal years and yearly budgets and project approvals outdated? Is something more malleable needed?

I wonder if the checks-and-balances are put aside if a donor enters the picture with funds for a project? Is ROI as important? Do the dollars work within the project approval system, or does the system work within the dollars?

Facility dollars are scarce for sure. I find it interesting to see how some strong systems are responding to the turbulence, and what it might mean for those with less…structural approval systems, discipline and money.

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