Starting with the impact of the Deficit Reduction Act in 2005 and moving to the current economic recession four years later, there is no need to question the fact that provider budgets are more strained than ever, and as a result, capital spending has significantly declined. The recent capital equipment workshop held by the Federation of American Hospitals in Washington D.C. offered a good perspective on various topics including the need for “instilling rigor and uniformity to ensure principled investments and services,” specifically the need for comprehensive value analysis process. Most of the panel discussion was directed at internally assuring that the limited monies available currently at hospitals are used to purchase capital equipment wisely.
Those making decisions about capital spending always have to manage the capital needs of their staff and patients against ever-shrinking budgets. One solution is to scour the entire financial system to uncover hidden revenue. Here are additional strategies that can be employed to find these much-needed additional monies:
1. Look to the Revenue Cycle: Consider finding more cash to purchase capital through revenue cycle improvements. A topic not covered in the workshop session was ensuring that funds to purchase capital equipment existed in the first place. Providers can collaborate with organizations to enhance financial strength through enhanced operating margin and cash flow, thereby freeing up funds needed for capital purchases. Improving revenue cycle management processes to maximize payment for services rendered is a critical first step in the complex maze of healthcare reimbursement.
2. Review Supply Costs: Consider finding more cash to purchase capital by paying less for supplies and equipment. Providers should consider higher compliance to product categories where they can, creating additional value at better pricing. Suppliers should respond positively to facilities that give them incremental business through enhanced compliance to categories, and better yet throughout the Integrated Delivery Network (IDN). Consider the ready-made high compliance contract tiers and whole programs that GPOs have to offer. They can offer benchmark pricing and back-end rebates that lower supply spend, so more money is available to purchase capital.
3. Join forces: Aggregation is a powerful ally. When IDNs make multiple facility purchases, in combination with “the power of the PO,” this can elicit great deals from suppliers. A GPO worth their salt will be willing to help their membership with IDN standardization initiatives. When there is no opportunity to do this or if the facility is stand-alone, consider purchasing capital equipment through a GPO group buy program where GPOs utilize their ability to aggregate purchases for their membership to leverage their negotiations. Such programs are helpful in obtaining double-digit savings from regular pricing.
The capital workshop also included sage advice to suppliers, from understanding and embracing the provider’s value analysis process, to providing the right information at the right time to the right people. Suppliers should not underestimate the relationship that the GPO has with the member. GPOs can assist a provider in identifying needed information and getting access to the right people. In addition, there are opportunities in the relationship between the GPO and the provider that can be leveraged to make a case. At the workshop, one change echoed by several of the distinguished panelists was that they were now scrutinizing each capital request like never before. If the same level of scrutiny is used across the entire financial system, better efficiency, enhanced capital budgets and more profitable operations could be just on the horizon after this latest financial storm passes.
Mary Ellen Kimmeth
Senior Vice President, Capital Equipment & Laboratory Services
MedAssets Supply Chain Systems