 Sheila Sferrella, MAS, CRA, and Michael Landis, CBET, director of clinical engineering, view a new install at Lehigh Valley Hospital, where the age of equipment is significantly below national norms. |
Health care spending goes one way, and one way only. Up. By 2010, it is expected nationally to be twice as much as it was last year. 1 Yet, the more cash spent on daily operations to keep pace with expected future utilization demands, the less cash a provider will have available to spend on capital acquisitions. In turn, the less cash spent on capital acquisitions, the less competitive that enterprise will bewhich then means future demand might fall well short of expectations, causing a potentially large amount of the cash committed to operations to have been made in vain.
One solution is to begin thinking of capital as a physical asset to be managed like any other. That is precisely how it is approached at Lehigh Valley Hospital and Health Network (LVHHN) in Allentown, Pa, where the results have been nothing if not impressive.
“Because of the way we manage our capital, we usually can produce funding for needed equipment,” says Sheila M. Sferrella, MAS, RT(R), CRA, FAHRA, administrator of a radiology enterprise that encompasses three hospital sites of Lehigh Valley Hospital (LVH) in the Lehigh Valley region of Pennsylvania, and two outpatient imaging centers. Sferrella works closely with managers of a freestanding MRI center that is the fourth busiest in the state, and Lehigh Valley Diagnostic Imaging, which manages an additional three outpatient imaging centers.
The relative ease by which radiology equipment funding can be obtained also helps account for the relative young average age of LVHHN’s imaging modalities, which, together, produced 417,600 studies last year.
“Our seven MRI units have an average age of 3 years, while our six CT scanners are only slightly older on average, 3.8 years,” indicates Michael Landis, CBET, director of clinical engineering.
(Average ages of other modalities are: angiography, 3 systems, 4.6 years; nuclear medicine, 10 cameras, 5.2 years; ultrasound, 22 machines, 5.3 years; C-arms, 8 units, 6.8 years; portable x-ray, 13 units, 7.2 years; diagnostic radiography, 19 machines, 8 years; fluoroscopy, 7 units, 9.5 years.)
“Compared to national norms for equipment ages, ours are low,” says Patricia Martin, MD, chief of Lehigh Valley Hospital’s neuroradiology section. “This is because we tend to buy quite a few new items each year. We do this to accommodate service expansions, but also to replace older systems at the end of their useful life.” Martin continues, “A big issue for us is that the technology has a much shorter half-life than it used to. So whereas before you could buy a CT scanner and expect it to hold you for 4 years, now you can’t. As a consequence of that, we’re having to come back to the budget table with requests for capital for replacement equipment at shorter intervals.”
Martin is not exaggerating about her large sized academic community hospital system’s buying pattern. For example, in late October, LVHHN will implement new RIS and PACS. Earlier this year, Lehigh Valley installed 17 computed radiography (CR) units across the network in preparation for the PACS implementation. By the end of fiscal 2005, a 64-slice CT, a 16-slice CT, and a 4-slice PET/CT will be installed. For fiscal 2006, radiology hopes to add two more 16-slice CTs.
MARSHALED RESOURCES
There are two different processes for funding equipment, programs, and/or services in the network: the routine capital budget and the strategic initiative (SI) process.
 Robert Kricun, MD, radiology department chairman. |
At Lehigh Valley, the process of acquiring new or replacement equipment typically proceeds with the development of a capital budget in the December to February time frame. According to Sferrella, who is a key participant in the annual exercise, the first step entails the radiology managers submitting to her their equipment recommendations along with cost and justification information. The radiology managers work with the chief radiologist of each section to identify which equipment needs to be replaced or upgraded, and where a room or machine needs to be added. If appropriate, managers in the departments of information services, facilities and construction, and clinical engineering will be asked to review those submissions. Sferrella then pores over them to make sure they are well enough developed to be sent on to a department team known as the radiology management group, including the radiology managers and radiology physician leadership, which includes Robert Kricun, MD, chair; Elliot Shoemaker, MD, vice-chair; and Alan Wolson, MD, chief of the Division of Diagnostic Imaging. With Sferrella and Kricun as leaders, this group will prioritize the requests, taking into account each one’s impact on the enterprise in terms of several factors. Those include: effect on quality of patient care, volume growth, emerging technology, and number of service hours; number of years of useful life before replacement becomes necessary; staff safety and comfort; accreditation and regulatory agency issues; and expenditures on FTEs and supplies in order to operate the proposed equipment. Kricun comments, “With this system of prioritization, we get broad participation with input from managers and radiologists, which allows us to work as a team and maximize the institution’s resources.”
From there, the prioritized list is passed up the chain to LVH’s capital budget committee. The radiology management group knows they will not receive approval for everything on the list, so they negotiate to make sure that, at the least, the highest priority items do.
The process for new programs or services over $100,000 is labeled “strategic initiatives.” Sferrella explains that this process is unique to the LVHHN in her experience. The fiscal year runs from July 1 through June 30 each year. The strategic initiative process for the next capital year begins July 1, so planning is a year out. There is a template used to submit an idea for an SI, which includes a description of the initiative, reasons for undertaking the initiative, evidence of collaboration, measuring success, estimated financial impact, conclusion, and a force-field analysis.
A short time later, the network’s senior managers and chairs of each department convene at a retreat to review the initiatives that were submitted, which usually occurs in September. The sponsor of each initiative presents a summary of their proposal and takes any questions from the executive group. Each SI committee member then scores the initiative using criteria that are consistent with the vision of the organization.
The scores are tallied and the highest ones are then prioritized. A senior management group called the network coordinating group (NCG) reviews the top initiatives and makes the final decisions about moving the projects forward. Some are recommended to just be implemented, some are sent back to the sponsor for more information, and some are sent back for a full business plan.
According to Kricun, “Examples of recent strategic initiatives include implementation of PACS, PET/CT, and a neurointerventional program (the only one in the region).” Radiology strategic initiatives requiring a business plan will be subsequently fleshed out with input from several departments, including finance, marketing, facilities, care management, materials management, and information services. Some plans can be quite comprehensive. Says Sferrella, “The one we produced to obtain funding for the acquisition of PET/CT this year filled 90 pages.”
That particular plan was so thick because it contained extensive explanations of what a PET scanner does, how it is enhanced when paired with a CT scanner, and how it could help the network further its revenue goals while at the same time advancing the enterprise’s standing within the community. It also considered estimated costs, and looked at both the enabling and inhibiting forces at play in the market.
“In our strategic initiative process, we do what we call a force-field analysis of the driving forces that would help the proposed initiative succeed and the restraining forces that must be overcome,” she says. “Where we’re concerned, forces that could be either enablers or inhibitors include trends locally, regionally, and nationally; our own organizational characteristics and competencies; the status of our competitors; the impact of the implemented initiative on the community; the level of existing demand for the proposed new service; how attractive it can be as a way to stimulate demand; what kind of customer service is going to be needed to support it; and, of course, the financial impactscosts, revenues, and profits.”
CUTTING SERVICE COSTS
No matter what the equipment being purchased or replaced in radiology, service costs at LVH tend to be lower than at other similar systems because of LVH’s preference for handling equipment servicing largely in-house.
“More than 5 years ago, we saved over $900,000 the first year by bringing most of our service contracts in-house with our service program,” says Landis. “In light of our rapidly changing high end technology, we estimate a savings last year of $609,000 based on our current imaging equipment cost-of-service ratio (COSR).” The cost-of-service ratio is the ratio of the cost of service compared to the acquisition cost of the equipment.
Looked at from another measure, LVH enjoys a cost-of-service ratio of 6.47% for imaging equipment. That compares to a national average of about 10.5% for enterprises relying mainly on full-service original equipment manufacturer (OEM) contracts, according to Landis.
LVH converted to in-house service in 1999. The goal, then as now, was to decrease overall downtime, Sferrella says. “We figured that if we could at least be able to troubleshoot, we’d be able to have a technician checking the equipment in minutes instead of hours.”
Kricun cautions that “an in-house service program may not be appropriate for every institution. There are many variables to consider including the size of the institution, ability to recruit qualified technicians, and commitment from radiology. You would not want to save dollars up front and increase downtime with a program that was inadequately administered.”
“It seemed to us that we were a sufficiently large system to be able to support an in-house program, and to be confident that we could be successful with it,” says Sferrella.
Initially, the servicing responsibility was placed in the hands of a pair of imaging service specialists who possessed general radiology experience. Their responsibility was limited to diagnostic radiology equipment, although that represented the hospital system’s largest technology piece.
Today there are four imaging service specialists and a working manager on staff; all of them reporting to the clinical engineering department. “Most have associates’ degrees in electronics and a great deal of imaging experience,” says Landis, who explains that they have also attended vendor-operated service training schools to further their knowledge and skills. “We have designated one of our imaging service specialists as a specialist in CT and ultrasound. Another is our specialist in nuclear medicine. The other two concentrate on general radiography and mammography.” The MRI systems are still covered by OEM service contracts. “I have a manager who works closely with the imaging modality and support managers,” says Landis. “On a quarterly basis, the clinical engineering director and manager meets with Sheila [Sferrella] and her managers to discuss service issues. Also, the imaging service specialists communicate with the radiology technologists to keep them informed on equipment repair status.”
Sferrella details why the coordination is valuable: “In our situation, our physicist – the radiation safety officer – goes in first and performs the annual survey on the equipment, then gives to the imaging service specialist a list of the items that fell out from her review and calibration. That way, we don’t have the problem of the imaging service specialist having to go in twice on the same machine: the first time to perform preventive maintenance, the second time to follow up on the items listed by the radiation safety officer. Instead, the imaging service specialist goes in to do preventive maintenance only after the radiation safety officer gives him her list, thus reducing downtime.” The activities of the imaging service specialists are coordinated so that they do not overlap or duplicate quality assurance activities conducted by radiologic technologists.
The role of the radiology technologists in quality assurance includes running MRI and CT phantoms at the start of the day to check signal-to-noise ratio and standard deviation-and-mean. They perform no preventive maintenance or servicing of equipment, Sferrella notes.
“That’s the job of the imaging service specialists,” she clarifies. “They’re the ones with the training for that.”
LVH continues to hold some service contracts, because they make financial sense. Even when no service contract exists, the hospital system still is able to draw on vendor technical expertise when needed.
“We recognized it would be impossible to have an asset management program totally in-house, which is why we kept about 30% with vendors,” says Sferrella. “We realized we’d always have that occasional problem that only a vendor’s engineers can resolve, and we budget funds to call them in on a time and materials basis when we do not have a service contract on a piece of equipment,” remarks Landis.
One way the hospital has mitigated the impact of such occurrences is by arranging for vendor training of its in-house imaging service specialists so that those technicians are able to take first-call on a wider range of problems.
“Most manufacturers are willing to sit down at the table and talk about providing your people with this kind of training,” Sferrella says.
Almost without exception, vendors are happy to provide over-the-phone support, “when it involves solving minor problems, like pointing out the location of such-and-such switch that we’re having trouble finding on a given piece of equipment,” adds Landis. Vendors also are willing to send out their service personnel absent of a contract. “It may cost us $200 an hour, but if we’re in a situation where our in-house team is in over their heads, we’ve at least got this option,” says Landis. If not managed correctly, Martin believes that keeping services in-house can take a toll on the relationship with the vendor.
TECHNOLOGIC HEALTH
LVH decision-makers in the radiology department have spent time attempting to define what constitutes a technologically healthy enterpriseimportant to understand because it affects the choices the hospital system will make with regard to its equipment acquisition requests.
Martin believes technologic healthiness stems from owning equipment that is up-to-date, well-serviced, and utilized appropriately. Of the latter, she offers that “inappropriate or unnecessary utilizations lead to schedule backlogs and reduced satisfaction. That’s certainly not being technologically healthy.”
 James Newcomb, MD, and Patricia Martin, MD, view soft copy images. |
James Newcomb, MD, chief of the trauma-emergency radiology section, suggests the measure of technologic health is found in an ability to stay on the cutting-edge without exceeding the capacity of resources to support it.
“You can,” he says, “reach a point where technology’s demands go beyond what you can manage in order to operate and maintain the equipment and provide a service. I think a technologically healthy enterprise is one that has made good choices about the equipment it acquires and good choices about when to replace or upgrade.”
That is what constitutes technologic health now. What about in the future?
“Hard to say,” Sferrella demurs. “Some technology advances so rapidly that projecting more than 5 years ahead is all but impossible3 years, in some instances. For example, a year and a half ago, nobody was even talking about 16-slice CT. Now, we are at 64-slice. What I’m saying is, I couldn’t have projected this development 3 years ago.”
With a future that is largely unknowable, making the effort to manage capital with an eye toward staying cutting-edge tomorrow seems like an exercise in futility if your technology choices today are likely to be off the mark. Sferrella disagrees.
“At the very least, it puts your next year’s capital budget into perspective,” she contends. “That’s important to be able to do when you have people asking you if the acquisition you want funding for can wait until the year after next. Unless you’ve done long-range planning, you can’t be able to respond effectively to that type of question. You look ahead and see that, yes, you need $2 million next year, but you also see farther out and realize you’re going to need $3 million the year after and $4 million after that because you’ve got things on a replacement cycle and have servicing requirements in addition to expansion plans. That way senior managers on the capital budget committee understand the implications of waiting another year when making their decisions.”
To inject greater accuracy to long-range projections, Sferrella recommends reviewing them annually and making adjustments accordingly in response to technology developments that occurred during the past 12 months and what is projected to occur in the near future.
“That’s what we’re doing here,” Kricun reveals. “Long-range planning, although challenging, is a completely worthwhile effort. This needs to be done if you want to be ready for the future. That is why we are presently working on a 3- to 5-year capital plan.”
“In the past, capital plans included only the age of equipment, useful life according to some financial tables, and projected replacement date by year,” says Sferrella. “We are using some resources like the Advisory Board report on the future of diagnostic imaging as well as knowledge from our managers and radiologists. The plan will be segregated by site and modality and include information on each piece of equipment. This includes: vendor, model number of existing equipment, age, hours per week machine is used, estimated useful life, 5-year market growth, utilization, emerging technology, service costs per year and COSR, software level, equipment condition, downtime issues, current capacity, and recommendations.”
Sferrella continues, “Our plan is to have the managers collect as much of this information as they can and then work with the chief radiologist from that section to complete the grid. For example, the ultrasound manager from one LVH site will work with the ultrasound manager from another LVH site to prepare all the information on ultrasound. Then we will sit down together as a group and review the projections and data and try to plan the next 5 years with Dr Kricun and me as leaders. It’s the best process we’ve ever used to do this type of planning and we are looking forward to the finished product.”
Rich Smith is a contributing writer for Decisions in Axis Imaging News.
References:
- Carpenter D, Hessler F, Clarke R, Bentley J. Book review: The Future of Capital. Health Forum Journal. March/April 2003. Available at: www.hospitalconnect.com.
