Budgeting for Technology Feature

Vigilantly monitoring his patient's vitals

The Budgetary Impacts of Technology Adoption: 5 Best Practices for Wiser Decision-making and Smarter Spending

A few years ago, TriStar Centennial Medical Center in Nashville, Tennessee, began investing in limb preservation technology to better treat patients with vascular diseases who were at risk of amputation. The system includes new X-ray, catheter and ultrasound equipment to allow minimally invasive surgeries that remove blockages and restore blood flow to arteries.

While the technology was costly, vascular surgeons pushed for it because they viewed it as a way to help many in their local community. Peripheral vascular diseases that often lead to amputation disproportionately affect minorities and older adults, says Michael Stabile, M.D., MBA, chief of staff at HCA’s TriStar Centennial Medical Center. By showing a commitment to those populations, the facility drew the attention of like-minded professionals. They saw firsthand the ripple effect of smart technology spending, Stabile says.

“When other surgeons saw we were serious about limb preservation, we were able to attract more physicians in various specialties, including wound care and podiatry—allowing us to structure a complete service line around a cutting-edge technology,” Stabile says. “Just like top high school athletes want to go to the colleges with the best training rooms and stadiums, high-end medical talent wants to go to top facilities that have the best resources.

“With a new technology that cuts across several subspecialties, you increase your chances of success and reinforce collaboration across the hospital,” he continues. “To use HCA founder Thomas Frist Sr.’s analogy, ‘smart people beget smart people.’ ”

In addition to expanding patient care services and boosting physician recruitment efforts, new technologies can improve workflows, enhance clinical outcomes and cut costs at healthcare organizations. Despite the advantages, departments that could benefit from such innovative healthcare tools have historically had a difficult time justifying the capital investment.

Capital funding continues to be a challenge, acknowledges Jeffery Woodyard, vice president of capital equipment services at HealthTrust. However, the current focus on value-based care requires continued improvement in the areas of patient care and satisfaction, and technology is often key in helping accomplish those goals. To ensure that they’re allocating their budgets appropriately, supply chain leaders must quantify the benefits of new technologies—both clinically and economically—while confirming that the technology “matches the facility’s strategic direction and mission,” Woodyard says.

Facilities can better manage the budgetary impacts of technology by adopting the following five best practices:

  1. Take a financial pulse.

Before presenting a new technology for capital funding, supply chain leaders need to understand the current financial environment of their facilities as well as that of their local community.

“The public perception of advanced medical technologies has been a love-hate relationship that goes back decades, and like a pendulum, swings both ways depending on how we look at it or present it to the public,” says Felix Lee, M.D., medical director of cardiovascular services at HCA’s Good Samaritan Hospital in San Jose, California, and HealthTrust’s cardiovascular service line physician advisor. “During economic boons, advanced technologies and pharmaceuticals are praised for faster diagnoses, improving the quality of care delivery, maintaining better health status and ultimately saving more lives.”

In those periods, high-dollar items such as hemodialysis, cutting-edge diagnostic imaging systems, organ transplantation and personalized medicine-based genetic testing are “all the rage,” Lee says. However, in lean years when hospitals are focused on cutting costs, “these very same advanced technologies and pharmaceuticals are vilified as the predominant factor for the continuing exponential escalation of medical costs, which makes this once-revered approach to healthcare delivery unsustainable,” he continues.

Before asking for a hefty capital investment for a cutting-edge technology, hospital leaders must understand the current views of C-suite decision-makers. “In some extreme cases, the fear is that when shortsighted and desperate cost-cutting strategies rule the day, it may obscure any ability to pursue strategies that may require upfront spending or investment in new technologies to achieve greater long-term savings,” Lee adds. “That’s when a persuasive presentation, creative alternatives or a long wait may be in order.”

  1. Differentiate between new and replacement technology.

Most facilities tend to create budgets based on routine capital and construction needs, lumping new and replacement technology into the same area, says David Heider, director of capital equipment services at HealthTrust. He suggests that facilities instead split routine funding into two buckets—one for new capital and the other for replacement capital.

“The latter addresses normal replacement needs, while the former allows the facility and administration to address the most recent needs, either as incremental growth with additional units or as a new service line or technology,” Heider explains. “New capital funding also allows the facility to focus on technology and benefits as well as the impact on and alignment to strategic direction.”

While new technology can also have an impact on demand for replacement technology, that tends to happen gradually, Heider says. In the process of quantifying the benefits of a proposed new technology, it’s important to assess its possible influence on the need to replace existing technology.

  1. Grasp the full cost of technology adoption.

Budgeting for a new technology always requires knowing more than the sticker price. “Most technology requires an experienced staff to maintain and manage it, and training to equip the staff to use it effectively, as well as space to put it in,” Stabile says.

Before implementing new technology, hospital leaders must
understand the full spectrum of associated costs. Start by listing the issues the technology is addressing and the improvements it will be enabling. “Those include quantifiable patient benefits such as decreased length of stay, quicker recovery time or minimal invasiveness,” Woodyard says.

“Does it replace current technology with more effective, less
expensive technology?” he continues. “Department leaders need to understand the direct and indirect costs of the technology in addition to what the reimbursement will be for the procedures it will enable.”

  1. Engage physician leaders in decision-making.

Facilities need to engage physicians in making choices about healthcare delivery, including technology adoption. Decisions about new technology won’t go over well if they’re made by hospital administrators and insurers in a silo, then mandated to clinicians, Lee says. “The most critical piece of the process is physician engagement with recommendations resulting from evidence-based data,” he says.

Acute care delivery and long-term follow-up involve more complicated and layered decision-making than can be accounted for based on analytics focused on profit, loss and return on investment. New technology’s economic impact can’t be boiled down to purchase price, overall care plan implementation or professional fees, Lee says.

“Medical decisions are complex, multifactorial interactions that involve patient demands, physician counseling, professional guidelines, reimbursement systems, societal expectations and legal considerations,” he says. “New technologies do, on average, improve the quality of health outcomes. But whether they do so in the short term, which most benefits hospitals and insurers, or over the longer term, which primarily benefits patients, is best understood by physicians who are tasked with co-managing disease entities with patients.”

  1. Collaborate with leaders who have shown commitment to the hospital’s core mission.

The most successful hospitals are those where clinical and
administrative staff are aligned with common goals and understand each other, Stabile says. “It’s impossible for administrators to have a handle on all the new technology coming out; they are dependent on their medical staff to vet and bring new technologies to them,” he says. “In turn, the medical staff has the responsibility to introduce the technologies that will best serve the hospital’s mission.”

To make sure that happens, Stabile recommends that hospital administrators choose medical leaders who demonstrate they have the best interests of patients and the institution at heart rather than simply what benefits their own medical practice.

“Your process for purchasing technology should be a collaboration involving many people; you don’t want a new service line revolving around one person,” he says. And physician leaders who are recommending technology investments need to take into account how those products will fit into the hospital’s overall strategy and how they will be financed.

“Moving forward, the C-suite will need to know more science, and medical leaders will need to understand more business fundamentals, such as how to put together a pro forma or develop a budget,” Stabile says.

The healthcare environment—with supply chain and clinical decision-making becoming more integrated and unified—is primed for greater collaboration, particularly when it comes to evaluating big-ticket devices and systems. Traditionally, the economic incentives for cost-based hospital reimbursements and fee-for-service physician reimbursements were isolated from each other. That practice “insulated physicians from the actual costs of care and promoted the use of exciting new technologies with marginal benefits for no other reason than novelty,” Lee says.

Today, however, alternative methods of reimbursement such as bundled payments are changing the financial landscape for physicians. “Establishing physician incentives and penalties,” Lee explains, “is making us all much more cost conscious.”

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