New report outlines capital allocation strategies for hospitals

Healthcare Financial Management, Dec, 2005

The challenges of caring for aging baby boomers, keeping up with advancements in healthcare technology, and improving facilities have put enormous financial pressure on hospitals. A new report published by HFMA in partnership with two healthcare industry leaders, GE Commercial Finance Healthcare Financial Services and Kaufman, Hall & Associates, Inc., outlines effective capital allocation strategies for navigating these expenses.

The report, Essentials of Integrated Strategic Financial Planning and Capital Allocation, is the third in the Financing the Future II series. It comes at a time when hospitals face difficult decisions in meeting patient needs and infrastructure demands while remaining financially viable.

"The complexity of hospitals as organizations, coupled with the scarcity of funding, make integrating strategic financial planning and capital allocation critically important," said Richard L. Clarke, DHA, FHFMA, HFMA president and CEO. "The key to effective capital allocation is a rational and clear process for evaluating and prioritizing investments."

According to the report, many hospitals fail to take a close look at their portfolio of services on a regular basis. In fact, data from a recent Governance Institute survey indicate that 27 percent of hospital and health system boards do not routinely require the integration of strategic and financial plans.

The report illustrates several best-in-class examples of healthcare organizations that have succeeded financially while delivering high-quality care. These eases are highlighted within the context of three corporate finance principles:

* Best practice capital management aligns an organization's long-range strategic, financial, and related operating plans.

* Consistent methodologies and templates facilitate the evaluation of capital investment opportunities based on solid analysis and consideration of project risk.

* Measurement and accountability ensure continued competitive financial performance.

The first Financing the Future series began the process of highlighting strategies that hospitals and other healthcare providers could use to improve access to capital through successful financial planning and execution. The series was led by HFMA in partnership with GE Commercial Finance Healthcare Financial Services, with research conducted by HFMA and PricewaterhouseCoopers.

The second Financing the Future series continues this process by defining, providing examples of, and encouraging the implementation of a best-practice, corporate finance-based approach to financial management in healthcare organizations.

Financing the Future II includes six reports published over 18 months. The series is geared toward healthcare finance leaders, their staffs, and healthcare executive board members. Each report illustrates how hospitals and health systems have applied corporate finance principles to achieve successful financial performance and capital access. The first report, published in May 2005, covered key principles of best-practice financial management, while the second, published in August 2005, focused on the "right" capital structure. The fourth report in the series will be published in February 2006.

FOR MORE INFORMATION

To order the third report in the Financing the Future II series, or to order previous reports, contact HFMA at (800) 252-4362 and select option 2, or visit www. financingthefuture. org.