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Capital Equipment Crackdown
Facility managers are demanding a return on investment before approving capital equipment requests.
Outpatient Surgery Editors
Publish Date: August 7, 2008

A handful of surgical facilities are still willing to purchase new capital equipment just to keep the requesting surgeon happy, but the breed is near extinction. Facing pressure on the bottom line, and having had the experience of purchasing "must-have" capital equipment that never got used, most facilities now have tight budgets and daunting, tedious approval processes for capital equipment requests that discourage impulse buys. Facilities carefully vet virtually every proposed purchase for its economic impact, and if the piece won't increase efficiency, bring in new business or replace something already in use, the request usually won't get granted. Some physicians still threaten to take their cases elsewhere if they can't get what they want, but few follow through. Most don't make such threats, either because they've accepted the financial realities or because they have no place else to go.

How We Buy Capital Equipment

  • The average figure at which an expense ceases to be operational and becomes capital is $2,469. The median is $1,000. The numbers are similar for both ASCs and hospitals.
  • In most facilities, physicians and staff submit capital requests just once a year. However, 60 percent of all ASCs address capital requests at least twice a year, some as often as monthly.
  • Virtually every hospital has a formal capital equipment budget, but only 71 percent of ASCs do.
  • Most facility managers have experienced "lead-apron hanger" syndrome. Two-thirds of respondents strongly agree or agree somewhat with the following statement: "Some capital equipment items requested by physicians in the past were purchased but then not used enough to justify their expense."

That's the bottom line from our survey of the managers of 243 hospitals (45 percent) and ASCs (54 percent) on capital equipment purchasing.

Gizmo envy
One thing hasn't changed: Doctors still love new technology. After attending professional meetings, "the doctors always want all the new toys," says Joan Ferrara, RN, assistant vice president of perioperative and surgical nursing at New Island Hospital in Bethpage, N.Y. Frequently, they're persistent, says Deena Lee, director of surgical services at Physician's Day Surgery in Fort Smith, Ark., asking about the new piece of equipment "every time you see them."

The problem is that the typical facility's annual budget for surgical capital equipment is modest: $200,000 for the median hospital and $50,000 for the median ASC. Those budgets must accommodate not only new items, but replacements as well, points out a survey responder. Additionally, most facilities are reluctant to rely on credit for capital equipment purchases — 64 percent typically purchase with cash, 23 percent use a lease or a lease with buyout option and 12 percent use loans or lines of credit. Some can transfer money from operational budgets to capital budgets if the case is really compelling.

Still, though, 71 percent of hospital facility managers say their budgets aren't big enough to accommodate the requests they receive. "We're lucky to be approved for a single item that significantly impacts patient care or an item that has totally broken down," says a director of surgical services for a rural Virginia hospital. Our survey found that about 62 percent of physician-initiated capital equipment requests get approved in hospitals.

Interestingly, even though their budgets tend to be significantly smaller, only 39 percent of ASC managers say their budgets are too small. Could it be that physicians in ASCs request new equipment infrequently, compared with physicians in hospitals? More than two-thirds of ASC facility managers say their physicians request equipment "not too frequently" or "not at all frequently." In hospitals, that percentage is reversed; two-thirds of hospital facility managers say physicians request equipment "very frequently" or "somewhat frequently." It may be that physician-owners of ASCs are more attuned to saving money, since it directly affects their personal bottom lines. "Our surgeons are very good at understanding resources are limited and generally only request something they feel is necessary or would increase efficiency or patient safety," says the nurse manager of an Idaho ASC. About 76 percent of requests made in ASCs get approved within one year, according to our survey.

The gauntlet
Because budgets are slim, most facilities have instituted a process for evaluating capital equipment requests. "Our money is very tight and we have to be careful to meet the needs of our patients and surgeons without bankrupting ourselves," says Ms. Ferrara. Although the process differs from facility to facility, here's how it typically works:

  • Request. The physician or staff member who wants the piece of equipment submits the request in writing, with a rationale (true in 70 percent of facilities). "The surgeon must personally present his case. It's up to him to justify his needs over his wants," says the perioperative director of an Ohio hospital.
  • Evaluation. A clinically trained manager evaluates and researches the request (true in 83 percent of facilities). Typically, the evaluation begins with a cost-benefit analysis or a pro forma. "Given the new payment system and the challenges it presents, conducting an analysis of the financial and efficiency impacts of obtaining new capital equipment is paramount," says Edward Tennant, CASC, administrator of DeAnza Surgery Center in Riverside, Calif.

The research may also include examining competitive products, obtaining price quotes, researching the service contracts, checking the product for safety and risk management issues, and sometimes running the purchase by the biomedical and IT departments. Other important items include the cost of associated disposables and how the facility will be reimbursed and by whom, says Maureen Spangler, RN, director of perioperative services at Lexington Medical Center in West Columbia, S.C.

  • Trial. If the product is deemed worthy, the manager will arrange for a trial of the product (true in 85 percent of facilities).
  • Budget. If the product looks like it will return a profit and it's popular with the facility's surgeons and staff, the manager adds the item to her capital equipment budget. But it's still not a sure thing. This person then prioritizes the item on the budget. Low-priority items often don't make it.

Annually, semi-annually, quarterly or monthly, the facility manager presents the budget to a decision-making body drawn from the OR management team (true in 68 percent of facilities). In an ASC, this may be a small committee composed of the facility manager, the medical director, the nurse manager and one or two key surgeons. In a hospital, it may be a value analysis committee or new technology committee composed of the OR management team and department heads. In nearly three-fourths of all ASCs, at least some items require approval by a board of physician-owners, which typically meets quarterly. In 58 percent of all hospitals, requests must be submitted to a value analysis committee drawn from many different facilities.

Profits first
In virtually all facilities, making a surgeon happy isn't reason enough to purchase capital equipment. The item needs to show a good return on investment or a significant improvement in quality or it is in jeopardy. An administrator of a New York surgery center says pieces that don't pay for themselves in 12 to 18 months don't get purchased. Throughout the process, the support of the operating room team leader is critical. More than three-fourths (77 percent) of our respondents say that in comparison with the input of other stakeholders, the input of the operating room leader is "very important."

What happens when a physician doesn't get his way? Most facilities don't beat around the bush. Sometimes the operating team leader just tells the physician verbally, sometimes the medical director of the facility must do this. A Colorado ASC administrator tells physicians, "We are looking into the request, but at this time, the equipment you are requesting is not a priority. We will keep your request and review it again at the year-end meeting."

When this occurs, most physicians tend to accept the refusal. Only 14 percent of our respondents say physicians threaten to leave "very frequently" or "somewhat frequently" after having a request denied. Only 1 percent of our respondents say physicians always leave after threatening, and only 11 percent say they sometimes do.

"Surgeons may not be totally happy, but they understand once we show them the ROI and cost analysis for the requested item," says Donna Smith, MT (ASCP), CASC, administrator of The Surgery Center in Oxford, Ala. "We also leave the door open to reconsider the item in the future should variables change or funding becomes available."

To be sure, the capital equipment process is stressful and politically charged — "the most cumbersome and convoluted part of the job," says the director of perioperative services at a Maryland hospital. But as physicians grow more accepting of the financial realities, it's getting easier. Several of our respondents say providing physicians with dollar figures greatly eases the process. Says Carrye Franzel, administrator of the New Braunfels Surgical Center in New Braunfels, Texas, "The more surgeons are kept informed of case-costing specifics relative to case reimbursements, the greater their acceptance of the need to justify new capital expenditures."