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Outsmarting an Impossible Medical Equipment Budget
Supply Chain

Outsmarting an Impossible Medical Equipment Budget

When Washington Adventist Hospital of Maryland hired ECRI Institute to provide equipment planning services for their new 170-bed hospital, they were in a financial bind. Their Certificate of Need (CON) budget for patient care equipment was only $33 million. But, after we completed detailed user group meetings, it was clear that the actual cost for medical equipment would be closer to $65 million.

Our client was not alone in getting caught in the CON budget squeeze. Currently, 35 U.S. states maintain some form of CON program—including all states east of the Mississippi, except Pennsylvania and New Hampshire. CON programs give the state government the power to determine whether there is a need for a new hospital or nursing home before it is approved for construction.

The CON process includes a budget of medical equipment and other essential items, such as building and construction, food service, furniture, and information technology, to create the entire project budget. Through this process, the medical equipment budget frequently gets reduced as other line items increase.

So, what can you do to plug an almost 50% equipment budget gap? It’s not impossible using this three-prong strategy.

Step 1: Find an Equipment Planner with Proven Success   

TIP: Work with an equipment planner who has access to real-world benchmark pricing, strong vendor contacts, space planning experience for your service lines, and market knowledge about technology trends and innovations.

Equipment planners play a central role in equipment selection, so it’s important that they have broad knowledge of equipment that clinicians really need. They also should have good relationships with vendors who can explain the latest features and options. Unfortunately, inexperienced equipment planners often select basic models for initial planning and budgeting. Later when clinical staff realizes that key features and options are missing, budget increases are necessary to upgrade to features that deliver high quality care. If your project is already past the beginning stage, don’t worry. In most cases, it’s not too late to close the budget gap.

Step 2: Assess Current Inventory and Integrate into the Yearly Operational Capital Plan

TIP: Identify equipment that can be relocated and equipment that should be retired. Calculate the replacement equipment needs immediately to ensure current patient care and create a companion list of support needed to expand future service lines.

This step includes two capital planning activities that must be completed to effectively close a budget gap.

  1. Identify the intrinsic value of the existing equipment which have the life expectancy to relocate.
  2. Review yearly operating capital spending plans to include necessary medical equipment for the years leading up to the opening of the new hospital.

The inventory process helps you determine which equipment to move it into your new hospital. Ask your biomedical or clinical engineering group for the equipment inventory, but don’t stop there. Other groups may maintain different lists of equipment that you also need to consider. For example, facility departments may maintain the operating lights and booms, beds, stretchers, and sometimes surgical tables. Laboratory and radiology may each keep their own equipment lists. Combining and assessing these list can be difficult, data may be missing, and decommissioned items may not have been removed. It can be a nightmare to manage equipment spreadsheets, so you may want to conduct a physical inventory instead.

Equipment inventorying can take a day or several weeks, depending on the scope of departments and types of equipment to include. The most critical and valuable pieces of equipment are medical devices specific to patient diagnosis and treatment, such as physiologic monitors, infusion pumps, and electrocardiographs. These major capital assets are clinically significant and above a minimum dollar threshold in value, either individually or as a fleet.

Step 3: Buy in Advance

TIP: Based on the inventory assessment, buy equipment in years leading up to the move as “replacements” for current items. Max out your yearly operational capital dollars and synchronize spending with the new facility budget.

Once the new hospital equipment needs are determined, the replacement plan and new equipment plan can be aligned. Most often, this step starts with major imaging equipment like MRI, CT scanners, and cardiac catheterization labs, which have significant space and utility requirements. Different manufacturers and models can have important clinical workflow differences.

Strategic equipment partnerships are another consideration when you are aligning replacement and new equipment plans. For instance, our client was offered a strategic purchase opportunity to bundle and discount patient monitoring equipment and imaging equipment for this site, as well as other sites in the future. With this offer, they decided to purchase new rather than relocate their existing equipment.

Once decisions are made to either move or replace equipment, the buying begins. Our advice is to keep on top of yearly purchases and max out yearly operational capital dollars. This spreads the capital burden over a multi-year period, and lessens the purchasing whirlwind that often happens in the year leading up to the new hospital opening.

An additional benefit is transparency with your department leaders. They will know exactly what they are replacing now in their current space, and what will be relocated or purchased for the new space.

Closing a 50% Budget Gap

Upon completion of their state-of-the-art hospital, our client confirmed that the ECRI Predictive Replacement Plan (PRP) we created for them took the guesswork out of their yearly capital spending. With this plan, they were better positioned to make the right purchasing and replacement decisions at the right time. Over the course of the Maryland project, we significantly closed the medical equipment budget gap, saving the hospital $29 million.

ECRI Institute’s three-prong strategy gets you started early with the right equipment planner, spreads the cost burden over several years, and balances current and future medical equipment needs. If you are in a state with a CON requirement, ECRI Institute can help you develop a medical equipment budget for the application. The ECRI process will give you a realistic budget from the start, eliminating struggles in bridging a funding gap that may appear later in the project.

To learn more about capital budgeting, visit ECRI's Capital Purchasing page. 


Photo credit:  Tracey Brown.