Your capital strategy plan and deliver: transitioning to a comprehensive capital plan helps healthcare systems best prioritize investments and respond to today's service challenges

Healthcare Financial Management, May, 2004 by Scott M. Walters, Kevin J. Nokels

It's an era that saw the dawn of pet rocks, Saturday Night Fever, and the Mary Tyler Moore Show. And chances are, your capital planning process.

Although the 1970s may evoke fond pop culture memories, their impact on your organization's strategic capital planning can be, shall we say, less than "far out." Most healthcare systems struggle with knowing how to allocate scarce capital dollars among a broad range of competing needs. To define priorities, healthcare executives in the not for profit sector typically employ a complex calculus that is based on a '70s "bottom-up" process driven by a laundry list of individual requests from department managers. Given today's scarce capital dollars and escalating capital needs, it is not surprising that this decades-old process is increasingly the cause of capital misallocations and unnecessary expenses.

To bring your organization's processes up to date, it may be time to consider a comprehensive capital plan. In contrast to the traditional three year, department-driven hospital capital budget process, this strategy-driven approach identifies and prioritizes major capital requirements over a 10-year planning horizon. By doing so, it allows leaders to:

> Identify interconnections among projects

> Achieve standardization and cost savings

> See the overall picture of capital needs and available resources

> Reach strategic goals through phased, prioritized investments

> Provide a framework and an ongoing process to prioritize and manage future capital requests for all users

Developing a comprehensive capital plan requires an investment of significant time and resources. Over the long term, however, it costs less than fixing the mistakes that often occur under traditional capital planning approaches.

System Strategic Plan

Three distinct yet interlocking elements make up a comprehensive capital plan: the overarching system strategic plan, individual campus development plans, and systemwide support plans.

The system strategic plan does exactly what its name implies: in broad brush strokes, it sets the overall strategic direction for the healthcare system. Grounded in the mission and vision of the organization, the system strategic plan defines the role of each campus--ambulatory center, community hospital, or referral center--and the role of each facility in its service area. The system strategic plan also outlines the degree of centralization versus decentralization of services systemwide. In addition to administrative, financial, and support functions, these also may include kitchen and laundry services, tertiary clinical services, and major clinical equipment selection and acquisition.

Campus Development Plans

Once the overall direction is set, individual campuses go to work and fill in the many details that need to be considered in operating their facility. Each campus development plan comprises three major elements: programs and service, medical staff, and facilities.

Programs and service. A campus development team, composed of hospital administrative and medical staff leadership, wrestles with a fundamental question: "What services should this hospital offer to successfully realize its mission and achieve its vision over the next 10 years?" The answers create the program and service development plan for the campus.

Consumers' healthcare needs and service expectations for their hospitals have dramatically changed in recent years, largely the result of population growth, lifestyle and cultural shifts, migration to suburbs, the graying of the population, and technological advances. Because today's healthcare systems often include hospitals that formerly competed to meet community needs, the system must coordinate individual campus plans to eliminate overlap and standardize delivery practices. System leaders should use this integration process to coordinate and leverage investments. For example, many clinical services lend themselves to a "hub and spoke" method for distributing secondary- and tertiary-level care.

Costs can be reduced and care improved by centralizing volume-dependent and high-cost services, such as cardiac surgery, neonatal intensive care units, and spine surgery.

The system strategic plan provides overarching direction to make these judgments and ensure plan congruence: Service lines that fit within the mission and vision are emphasized; those that do not are pared back. The motto is, "Focus brings success." Few hospitals can shine across the range of service lines. The campus development team should use a vigorous analytic process to separate programs that merit investment from those that do not, while system leadership provides oversight. The remaining services are listed in priority order at both the campus and system level. Making such priority judgments facilitates the pruning that occurs when the cost of the programs and services exceeds available capital.

New operating models should enhance both patient convenience and staff efficiency. Emerging trends include multifunction and multidepartment centers--for example, diagnostic centers that combine most major diagnostic modalities within a single area and procedure centers that co-locate all services that utilize nursing preparation and recovery services. Such centers make patient access easier and improve staffing efficiency and effectiveness by reducing the number of staffing points.