Asset Management and Equity

This post follows up on 2 accompanying articles: The Best Capital PlaybookEver!  published by About.com and Capital Programs and the Cost of Doing Business, published by Asset Management for Healthcare .

The Best Capital Playbook Ever! pokes fun at what seems like a norm in hospital capital programs.  The process tends to result in creating problems rather than solutions:  excess equipment, poor utilization, and inconsistent reporting. 

Capital Programs and the Cost of Doing Business, takes a look at the philosophical reasons these occur.   I believe leadership often sees asset management functions as expense centers instead of centers that increase equity.  Also, asset management positions, as one sees in other industries, are hardly found in healthcare.  The blog post gave the following example and argument:

“A department has $1,000,000 in overhead cost.  Projects and initiatives generated by that department slices $3,000,000 from corporate cost over the previous 3 years, actually freeing up cash that previously trended as spent in that category.  The department has decreased the total liabilities in comparison to total assets.  Is that not a form of equity… actually an increase in equity?  If equity is increased, that is a factor of revenue”.   I concluded by stating that a company should invest in equity increasing departments. 

Make your initial investment a huge one.  Invest in generating thoughts.  The result should be insuring that cash and credit are available to act on strategically important acquisitions needed for growth and reactions to market forces… or cuts in reimbursements.  These are strategically important to knowing the cost of capital as well.      

So, here’s one thought, The function of Asset Management is to increase the profitability of revenue projections, reduce risks, reduce costs, and recover investment.  Next, put together Key Performance Indicators, KPIs, to measure the effectiveness of the program. 

Please bear with me a moment.  Give me a KPI for The Joint Commission biomedical equipment repair preventive maintenance completion rate.  Give me a KPI for your Emergency Room wait time (doesn’t matter if you never consistently obtain it.)  Give me a KPI for percent of claims paid.  Give me a KPI for nosocomial infections.  You may not be able to recall all the KPIs but you can guarantee they are written somewhere.  What is your KPI for the capital equipment projections?  Not what percentage of the list you plan to buy or how much money you are trying to save but the very reason that you established the list in the first place.

Here is what I mean.  In my book, Covering Your Assets By Exposing The Butt-Ugly Truth, I recommended that we consider KPIs  to measure the effectiveness of capital planning programs for the following areas: no longer supportable, beyond economical repair, and clinically insufficient.   There are times when things just happen.  More often than not, we can project and prioritize those requirements even in the asset intensive environment of healthcare.  Writing the KPIs before writing the detail of the policy guides the development of the program’s expectation from the beginning.