From the March 2021 issue of HealthCare Business News magazine
By James Laskaris
The delivery of healthcare in the U.S. is rapidly evolving, driven by changing patient demographics, legislative initiatives, health systems mergers, and new clinical challenges.
To adjust to a changing environment, healthcare has become reliant on new technology and devices to improve outcomes and stay relevant in an increasingly competitive marketplace. This has put added pressure on organizations to adopt a systematic approach to the budget process to address their evolving needs.
The U.S. medical technology market is estimated to be worth approximately $180 billion, with the imaging market alone accounting for more than $12 billion. Compared to labor (50%) and consumables (30%), medical technology represents only a small portion of a hospital’s entire budget (about 6%). But few diagnoses or therapies are delivered without the aid of some sort of technology. In addition, more informed healthcare consumers are seeking innovative solutions, which adds to the need for new technology. The bottom line: technology drives a hospital’s focus and allows it to be competitive in its space.
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Traditionally, hospitals have relied on a static capital budget. With a static budget, C-suite leaders set aside how much they plan to spend at least a year in advance. The challenge is forecasting a hospital’s technology needs a year in advance. It is not a perfect science, especially as the healthcare environment changes. Another approach is the rolling budget, which is intended to be an agile process that allows the budget to be readjusted throughout the year. This enables the health system to strive toward the goal of continuous improvement by addressing new priorities more quickly and adjusting as the market changes with The downside: the budget must be readjusted every month or quarter and not just added to.
There are several categories of capital requests: strategic, routine, non-strategic, and non-routine. A strategic capital outlay is intended to allow a hospital to maintain its position in the market or to expand into new markets with new services. Routine capital expenditures involve budgeted purchases of a technology to maintain or replace existing assets. A non-strategic capital expenditure is an outlay that will replace or add to a provider’s assets without being critical to expanding into new markets. A non-routine capital expenditure is an item that has not been budgeted for. The challenge is to incorporate a process for routine purchases and still have flexibility for unbudgeted strategic purchases.