As the financial model for health care shifts toward performance and quality, organizations invest in new delivery models. These models require significant capital investment, and as result, impact capital spending processes and allocation.
Health care organizations preparing for the future must broaden their focus beyond bricks and mortar to investments in IT and other solutions that orient the organization toward higher-value care. Increasingly, executives can’t and won’t support investment in “shinier” objects; instead, they direct investments toward solutions that increase quality or lower the cost of care.
At the Health Forum-American Hospital Association Leadership Summit in San Diego in July, a group of C-suite hospital and health system executives gathered to discuss the changes in capital planning and the impact on their organizations. The discussion was moderated by Doug Shaw, chief operating and development officer, Health Forum, and sponsored by Siemens Healthineers.
Here are five key shifts that emerged from the discussions, supported by the experiences of the participating executives.
1. Bricks-and-mortar investments are becoming more deliberative as health systems prepare for growing ambulatory care, healthy populations and risk-based reimbursement.
William Fulkerson, M.D., executive vice president, Duke University Health System in Durham, N.C., explained that his organization is investing more in ambulatory care, IT and population health tools. But with its location within a growing population, the organization must balance those investments with traditional acute-care spend. “We’re almost walking on wire in terms of how much we shift to the ambulatory side, the post-acute side, the population health side, the IT and analytics side, versus continuing to stay ahead where our utilization continues to be very high,” said Fulkerson.
Randy Oostra, president and CEO, ProMedica Health System in Toledo, Ohio, agreed that acute-care spending must be closely evaluated, using data on population changes, current utilization and future projections to drive decisions. “We’ve done more scenario planning than ever before…because the complexities in healthcare continue to compound exponentially,” he said. “When we are evaluating major capital investments, we also try to assess the projects through the lens of how these decisions will impact future generations in our communities. Then we apply rigorous criteria that really forces us to prioritize in determining when and where is the right time to invest.”
Terry Coutsolioutsos, senior vice president, Siemens Healthineers, explained that he sees the organizations he works with laser focused on preparing for risk. “I can’t tell you how many times the word risk comes up as we look at being a health care partner,” said Coutsolioutsos.
2. Investment decisions are increasingly guided by the ability to improve the value of care, either through lowering cost, improving quality or preventing unnecessary care. “Projects that improve quality, safety or have strong ROI’s are prioritized for approval,” said James Berg, president, Texas Health Presbyterian Hospital Dallas.
For Joseph Alhadeff, M.D., president and chief executive officer, OSS Health in York, Pa., all capital decisions are based on quality and safety. “There’s more of a focus on clinical efficacy, and in the things we’re doing, do they make a difference for the patients?” he said. “We may say, yes, this is a nice technology and it may make the surgery a little easier [for the physician], but is it really going to affect your outcomes or your bottom line? For most of the nice toys, it’s not.”
Candance Guinn, B.S.N., R.N., Chief Quality Officer, Medical Center of South Arkansas in El Dorado, agreed that “quality and safety have come to the table” in regard to capital planning discussions. “We’re more involved in those decisions,” she said. In terms of strategy that guides investment decisions, “It’s not just ‘what can we offer that’s different?’ It’s ‘what can we offer that’s better?’”
3. Service lines on the receiving end of big investments are shifting from high-cost, high-profile surgical lines to preventive ones. “There’s one really big factor, which is how fast are you going to find yourself at risk?” said Alan Lieber, president, Overlook Medical Center in Summit, N.J., and vice president, Atlantic Health System. “Today major tertiary referral programs such as cardiac surgery and neurosurgery are critical to a health system’s financial success. In a risk-based environment, successful management of more routine and chronic diseases such as pneumonia, congestive heart failure and diabetes will become more critical to health system financial success.”
Oostra of ProMedica said service line business decisions are more deliberative than ever before. “Healthcare organizations are evaluating not only service lines but their entire operating models in more breadth and depth than ever before, in part because of integration, the shifts in demographics and financial accountability, technology, as well as community needs.” He added, “You really have to spend more time balancing clinical, financial, workforce and community needs with a higher level of scrutiny.”
4. Capital spending decisions and processes are becoming more transparent, in part, because more staff with individual areas of expertise need to be involved in weighing the costs and benefits of potential investments.
“We have a resource advisory committee that includes physicians, department heads, administration and finance,” explained Deborah Wilson, chief financial officer and executive vice president, finance and transformation, Lawrence (Mass.) General Hospital. The group is tasked with prioritizing all requests and whittling it down to align with available funds. “Because of the back and forth and collaboration, people have a sense that it’s a fair, transparent process. Departments understand why they may not get funding for an investment.”
5.Strategic partnerships are attractive as hospitals seek to reduce capital outlay and risk, while sharing in successes. “We engage strategic partners,” said Berg, whose parent organization, Texas Health Resources, recently partnered with Adeptus Health to add 27 freestanding emergency rooms throughout Dallas-Fort Worth, and by doing so “greatly reduced the capital spend for these additional care access points.”
Fulkerson said Duke is also aggressively pursuing partnerships, explaining “Some of it is capital avoidance, but not all of it. Some of it is about strategic growth, such as our joint venture with LifePoint Health to acquire community hospitals in and around North Carolina.”
Michael Wendt, senior vice president of diagnostic imaging, Siemens Healthineers, noted his organization is exploring strategic partnerships with providers, positioning Siemens Healthineers as less of a vendor and more of a strategic partner, equally invested in improving care delivery. “I’ll put it on the table, we could explore providing equipment for free, but if we did, we’d want in return a portion of the reimbursement.”
Jose Sanchez, president and CEO, Norwegian American Hospital, an urban Chicago hospital with a high Medicaid patient population agreed. “We also try to mitigate our risk with partnerships with different providers and organizations. We don’t run outpatient clinics anymore, but we work with four federally qualified health centers, two of which run inside the hospital. One does general care and one focuses on women’s health services.”
By reducing capital outlay and risk, partnerships help provider organizations prepare for the pressure on cash that comes from being in alternative payment methodologies explained Wilson of Lawrence General. “Potentially, you will have to become a risk-bearing organization, and with that, you have to have the ability to fund performance risk.
“As balance sheets get stressed, asset allocation and planning will be more challenging,” she explained. “Partnerships that reduce the demands of asset replacement will be important. I need to focus on the variability of performance risk.”