METHODOLOGY: The Facility Assessment Capital Strategy (FACS) methodology involves hospital process improvement programs integrated with capital strategy. CADAFIS works with your current process improvement program or seamlessly introduces the best of the most advanced process improvement practices to fit the hospital’s mission. Either way, FACS is integrated with process improvements to reduce or control operating costs, improve services and increase margin. Assessments are made of process improvement proposals and facilities, supported by “what if” simulated configurations of capital equipment and physical plant. Financial present value analyses using LCC are made of preferred solutions to find least combinations of capital, payroll, and non payroll operating costs. Process improvement and costing become a proactive, sustained routine.
EVIDENCED BASED: FACS & LCC is based upon the successes of for-profit industries that have used process improvement techniques and financial present value (PV) analyses to improve product quality and costs. Although hospital process improvement program results vary widely, they are now part of “deeming authorities” accreditation requirements for eligibility for Medicare reimbursement. Implementation of process improvements will have a profound influence upon costs. FACS provides decision makers with financial analysis reports to make informed decisions for capital expenditures to implement these proposed process improvements.
Capital may be spent to increase amounts and types of services. Capital may
also be spent to reduce operating costs. Capital is a very small percentage
(approximately 5%) of the total cost of hospital services over the life of
capital plant facility. Thus, capital allocation presents potential for
significant cost savings by substitution of capital costs for operating
costs. Any small savings in payroll will result in very significant cost
savings later on. This is so because payroll operating costs inflate over
time while capital does not.
COST SAVINGS NATIONWIDE: Fig. 2, 9.9% reductions in operating costs are conservative when compared to findings of the report: Quality Management for Health Care Delivery by Hospital Research and Educational Trust for AHA., which stated: “Hospitals can reduce operating expenses 20% to 40% if they implement process improvement programs fashioned after those used in other industries”. Coupled with effective capital strategies, 40% is attainable, and could result in annual savings of $250 billion for the USA.
IMPLEMENTING FACS: CADAFIS facilitators work with the hospital’s process improvement team to align practices and results with the hospital’s objectives. Features of such practices as PDCA, Lean, ISO 9001, and Six Sigma and others are considered. The process involves staff teams in scrutinizing their ties to suppliers and customers, support activities, inventory, work station setup, and flow of personnel, information (see Rand study $77 billion savings comment below), and materials. Once preferred process improvement options are proposed, cost analyses are done with CADAFIS software. The 2005 Rand Corp. Study stated: “computerized record keeping could save the health care delivery system $77 billion annually, however, …other changes in the system must occur in order to affect such savings”. The point in case is, all components of the process must be addressed, or a process improvement poses the risk of “locking in” inferior, more costly solutions. It is imperative that risk management address the interests of all linked system stakeholders. FACS links all components to process improvement proposals and performs financial analysis of the proposals.
EXPERIENCE & CASE STUDIES: CADAFIS personnel have been involved in the architectural design, operations analyses, process improvement, marketing and facility cost evaluations in one phase or another of over 8,000 buildings, and developed software support for facility management and costing strategies. CADAFIS personnel possess a unique combination of hospital design, process facilitation, and software programming skills, essential to the success of FACS & LCC applications for hospitals. Case studies are available on the CADAFIS web site of international manufacturing clients that have implemented improvements in product focus, process, and plant utilization that have resulted in dramatic reduction of product unit prices. Studies for non-profit hospitals show millions of dollars in present value cost savings using FACS. Least costly capital facilities were the most costly to operate when factored for least combinations of capital and operating costs.
LCC Least Cost Combinations
PRESENT VALUE: The relation of capital costs vs. operating costs poses an interesting consideration in estimating what capital expenditures will add value. Few non-profit organizations practice a repeatable, reliable method for determining present value of savings of comparative process improvement initiatives. The economic reality of hospital operations is that service products consist of a combination of capital costs, payroll and non-payroll operating costs; they cannot be separated if analyses are to be accurate in determining the impact of such combinations of expenditures of a new process upon product costs and quality. Capital may be substituted for operating costs, but must be considered together with other factors in seeking least cost combinations of proposed process improvement solutions.
Several factors should be considered in determining the present value of savings in operating costs and whether the savings will be greater than the original outlay for capital expenditures. These factors include estimates of capital costs, payroll and non-payroll costs, interest rates, discounting, and present value associated with the following conditions:
|FIND PRESENT VALUE OF SAVINGS OF SOLUTION “A” VS. CURRENT PROCESS:|
STAKEHOLDERS DRIVE IMPROVEMENTS: With FACS, descriptions of process
improvement solutions and financial analyses reports are electronically sent
to contract stakeholders. With ease of ability to electronically acquire,
report, evaluate and disseminate data and seek consensus for actions; the
interests, sanctions, and incentives of and by the system’s stakeholders are
readily met and achieved, which continuously drives improvements.