Capital Planning and the Future
As the future of health care swerves with each passing day, it's dangerous to plan a hospital's capital needs based on stale assumptions, says CLAY ASHDOWN, assistant vice president of financial planning and capital investment at Intermountain Healthcare in Salt Lake City. The 22-hospital system has taken a different approach, involving everyone from health plan leaders to physicians, and always with a forward focus. | Interviewed by Marty Stempniak
How does your capital planning process work?
ASHDOWN: We have representatives from our health plan, clinical operations, our medical group, hospital operations, strategic planning and information systems, and we look at projects through a few different criteria. We look at things that provide a demonstrable benefit in quality or service that in no way compromise affordability. That's one criterion. Another is that it provides the appropriate access to care — not too much, not too little — that is conducive to a future health care environment, meaning that it focuses on making sure that no care is delivered that doesn't absolutely need to be delivered. That's not to be confused with withholding care, because we would never withhold appropriate care. We want to make sure we're not doing things just because that's the way things have been done. We make sure we have the appropriate metrics in place before any procedure is done. And then we also have a manageable risk.
So, it's really focused around whether this is a benefit we're providing to our community, to our patients both in terms of quality as well as affordability. Too often in health care, people have looked at ways to improve quality without significant regard to affordability. It's a very objective, portfolio-based type of capital evaluation process that we look at holistically and ask, 'Is what we're doing going to be what we would want down the road 10 or 15 years, rather than just one to two years?'
How did you design this capital planning process?
ASHDOWN: About three years ago, people thought we had a pretty good process, but we wanted to have a better understanding of that. So we polled and talked with officials of 10 or 12 major, highly rated nonprofit health care systems in the country and really dove into their processes to ascertain what was working well, what wasn't working well and what we could glean from that. Beyond that, we went outside the industry and interviewed five Fortune 100-type companies — very large, non-health care businesses — to look at their practices. The same considerations or factors may not apply, but what are the metrics, what are the criteria and what process will ensure that we have a predictable, disciplined process? Even though we might make a decision that a for-profit entity might not, we need to make sure we understand why we're doing it, understand the metrics and, more importantly, how that impacts our operations and our business so that, even if we're making some mission-driven decisions, we go in eyes wide open knowing how they are going to impact everything else. We never try to compromise our objectivity and due diligence just because we might be making some decisions that are based on criteria other than monetary.
What makes Intermountain's approach unique?
ASHDOWN: For one, having completely integrated systems is not that common [and] gives us a leg up. I certainly think that there are a lot of more mature and well-managed companies that have some sort of committee to evaluate capital projects and look at them on a variety of metrics as part of their due diligence. We were just trying to identify little pieces that we could glean from each individual organization that we could then implement to make ours better. We did find lots of good ideas to incorporate. Having the committee isn't unique. What I would say is unique are the criteria by which capital has been evaluated. Now we're truly taking a look at the shared accountability and making sure that we're driving down any unnecessary variation, any unnecessary utilization, and making sure that we're doing things that are truly aligned with where health care is going — a value-based system. I think we're ahead of the curve in that regard.
What are some of Intermountain's biggest capital needs?
ASHDOWN: There are a lot of information system requirements through electronic health records or health information technology. We're certainly spending a great deal of resources on that. We have a very low average age of plant, which is a benefit, but we are growing because both our population and community are growing. We're investing in a lot of ambulatory centers to try to provide cohesive and coordinated care and a lot of multispecialty clinics where we'll have a combination of primary care clinicians as well as specialists and advanced practitioners. Most of our growth is on the outpatient side, but we do have a couple of older facilities that need to be brought up to speed. In terms of funding, we use a combination of operations, tax-exempt debt, and we're trying to enhance our philanthropic presence.
Talk about the importance of liquidity in today's environment.
ASHDOWN: Liquidity is paramount. Anybody who lived through 2008 recognizes that liquidity is something a lot of people took for granted until that time. After the massive bear market, with a lot of banks running into significant trouble and no longer being able to offer liquidity, everybody is taking a very different stance. You need liquidity to be able to prudently manage your operations for the long term. We need to make sure that we have reserves so we can take a long-term perspective, make sure that we're reinvesting in the community and that we're able to operate in an efficient manner without having to make knee-jerk corrections because we simply don't have enough liquidity.
What are the biggest capital planning challenges?
ASHDOWN: The biggest challenge right now is that we're living in two worlds. The way health care is delivered is changing — much more outpatient, much less inpatient. We need to focus on wellness rather than just wait for people to show up at our door — managing them on the front end and being proactive. Health care really hasn't been set up that way, and so it's adopting these new principles and making sure that you're investing in true, long-term value propositions that will be conducive to the new health care environment. All of the financial and operational models are predicated on the way that health care has been delivered for years and years. It's a tough transition to make. We need to engage physicians, patients and health plan members in a much more meaningful way than we ever have.
What capital planning advice do you have for hospitals?
ASHDOWN: Don't wait too long. I think more and more systems are gravitating toward the future of health care. Others are just waiting until they're compelled or forced to. Nobody's going to be able to flip a switch and completely turn a hospital's operating model upside down.
The Ashdown File
I've been at Intermountain since 2000 and in this role since early 2012, although I've had accountability over capital for longer. I have a background in financial planning and accounting, but I have a good fit with Intermountain because I really value what the organization does. It's well-run — it's run efficiently and pragmatically, but it's also driven by a lot more than just the bottom line.
What are you reading right now?
I just downloaded "The Immortal Life of Henrietta Lacks." I'm looking forward to reading that one. The one that I just read that I really enjoyed was "Boys in the Boat." It's about a crew team from the University of Washington that went to the 1913 Olympics.
I've got three little girls and a baby on the way, so I don't really have time for hobbies. When I'm not working, I try to spend time with them.