Capital Needs

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January/February 2005

By Danielle Cohen

Whether rehabilitation hospitals are nearing an age of 50 years, breaking ground on a new facility, or embarking on a new phase in its existence, at least one thread ties them together: the need to fill those facilities with the proper tools for staff and the necessary equipment to treat patients.

In a time when needs compete against budget constraints, some rehab hospitals are forced to use creative means, along with their tried-and-true purchasing methods. Madonna Rehabilitation Hospital, Good Shepherd Hospital, and Casa Colina reflect situations that all facilities at one time or another have faced or are facing: a typical fiscal year, plans for growth, and the end of a long expansion process.

MADONNA REHABILITATION HOSPITAL: BUSINESS AS USUAL
Madonna Rehabilitation Hospital, Lincoln, Neb, began as a geriatric facility in 1958. In 1966, it received the nation's first Medicare certification and began offering rehabilitation services.

The nonprofit facility’s inpatient units cover a spectrum of care—including traumatic brain injuries, spinal cord injuries, stroke, and pediatric rehab—with beds for acute rehab, extended care, skilled nursing, and long-term acute care.

Among its outpatient services are four clinics and a rehab day program. Madonna is also in the process of building a new health and fitness center.

When it is time to purchase equipment for Madonna’s 341,630-square-foot-main building, Christopher Lee, PT, MSPT, director of inpatient therapies, goes to what he calls his best source. “It’s really important to get input from frontline staff,” he says.

Madonna’s fiscal year runs from July to June. As part of determining the hospital’s annual budget, each department supervisor works with their staff to identify equipment needs, including cost estimates, for the next year. That information is submitted to Lee, who works it into the budget.

Items are separated into operational purchases—items less than $1,000—and capital purchases—items that are $1,000 or more. There are separate approval processes for operational versus capital purchases.

For operational items, the information is worked into each departmental budget and, if approved, the funds become available for purchases throughout the next year. “That is just a blueprint for what we’re expecting to purchase in the next year,” Lee says. “But we may or may not actually purchase all of those items that we’ve put down. All of that miscellaneous equipment is very fluid. We’re able to use those dollars in a lot of different ways.” For that process, Lee is the final decision-maker.

If for some reason a particular operational item is not purchased, the funds remain within that department and may be used for another operational need.

Capital purchases, however, go through another round of approval. Those requests are submitted to an administrative team that determines what will be available in capital dollars for the coming budget year and how to allocate those funds to the different departments. “Once you’re within that fiscal year, there’s a second round of approval where they need to go back and tell whether they’ve decided to purchase the equipment. They need final approval to free up those funds,” Lee says.

Unlike with operational equipment, if a department decides not to purchase a particular capital item and make a substitute purchase instead, it must go through another approval process. “If you choose not to buy a piece of equipment, those funds are freed up and they may go for some other capital need in the hospital,” Lee says.

In the 2004 fiscal year, Madonna spent approximately $2.45 million on about 186 pieces of capital equipment, including patient lifts, oximeters, therapy equipment, computers, teleconferencing equipment, assistive technology equipment, and research-related equipment. No information on total operational equipment expenses was available because it is “spread out over dozens and dozens of budgets” within each department, Lee says.

The hospital estimates spending $1.64 million on capital equipment for the 2005 fiscal year, including a new truck for the groundskeeping department; patient care-related equipment, such as lifts, beds, and specialty wheelchairs; and new and replacement computer hardware, including about $100,000 for a distance-learning program.

In the budget approval process, items required for patient care, and replacement items, have top priority.

Vendor visits also play a role in the Madonna selections. “We ask various vendors to come in and do in-services so that the frontline staff have an opportunity to see the equipment in action and maybe to get hands-on [demonstrations],” Lee says.

Madonna is also affiliated with the Voluntary Hospital Association (VHA), which provides hospitals with a discount if purchases are made through VHA sources.

While there have not been any “lemons,” some items did not get as much use as was anticipated. “There have been some times when we purchased exercise equipment that seemed like it was really going to be great and we would get a lot of use out of it; then it just ended up not getting used as much, because either the patient population changed or we found that it didn’t work as well as we’d hoped,” Lee says.

Fortunately, there have not been too many instances of that happening, which Lee chalks up to the involvement of his frontline staff in the decision-making process. “If it were just someone at a manager level deciding, ‘This is what we’re getting next year,’ then I think you’d have a lot more of those mishaps,” he says. “But when you’re talking to the people that actually do the work and they know what they need to do that work, I think you have much better results.”

Along those same lines, Madonna works with the Gallup Organization to track employee engagement through an online survey system called Q12. One of the items within that survey is whether staff members have the equipment and materials necessary to do their job. “That’s considered to be one of the foundational items within the Q12: if you don’t have certain basic things, very little else really matters.

GOOD SHEPHERD HOSPITAL: LOOKING TO THE FUTURE
Madonna’s mostly business-as-usual approach could be a ways off for the Good Shepherd Rehabilitation Network, which broke ground last September on a $27.9-million transformation of its Allentown, Pa, campus—one of 15 outpatient satellite hospitals.

The highlight of Good Shepherd’s project is a new 64,000-square-foot outpatient center that will include an aquatic program, musculoskeletal physical therapy, a hand rehabilitation center, a chronic pain program, an outpatient day hospital, an assistive technology center, and a large health retail space. The project is expected to be completed in June 2006.

With all of those programs and services will come many purchases. The swimming pool will require aquatic-related equipment; the technology center will need items from augmentative communication software to wheelchairs; and the orthopedic physical therapy area will need fitness strengthening and musculoskeletal-related equipment.

The Allentown rehab hospital currently has 63 inpatient beds, and about 200 staff members in its inpatient and outpatient areas.

Good Shepherd’s fiscal year begins on July 1, and its budget is put together annually by program. Its capital budget for fiscal year 2005 is approximately $2 million. “If we need [equipment for] a new program, we need to justify the purpose and mission of the program, the clinical needs, and financial return,” says Frank Hyland, PT, vice president of outpatient services.

Capital needs are twofold—the replacement of old equipment and new equip-ment for new programs.

The capital planning process starts with the department heads talking to their staff about their needs. An initial draft of a budget is then submitted. “It’s kind of a wish list, but we take it pretty seriously too. We just don’t want people to ask for the sky,” Hyland says.

After the initial draft is submitted, the entire organization’s capital budget is put together to see what can be afforded and which purchases make the most sense. The final decision is made at the senior management and board levels.

Vendor visits and product demonstrations play a large role in the deci- sions made at Good Shepherd. “A lot of equipment we’re real familiar with too, but we still like to get two different vendors for the same equipment to make a choice on features and price. And we use the Web a lot,” Hyland says. “We’re looking for a quality product and a vendor who’s going to back the product, so durability and warranties are very important. And we’re always looking for a good price. The most important thing is trying to separate out fact from fiction. Sometimes the sales pitch sounds too good. That’s the due diligence part, where either you talk with other colleagues or you get demos or you see the equipment just to make sure it really is the right piece for you.”

Good Shepherd has a biomedical department, which provides preventive maintenance and servicing in-house, but the hospital also uses service contracts for some of its more sophisticated equipment.

This past year, Good Shepherd ad- ministrators and staff visited other rehab hospitals to view and discuss any pros and cons of their past equipment purchases, especially those regarding assistive technology.

Cost has prevented the purchase of certain items in the past. To help save on cost, the hospital tries to salvage old equipment whenever possible. “There’s a lot of equipment that will easily be brought over to the new building,” Hyland says.

In 2004, Good Shepherd Rehabilitation Network received a $25,000 grant from the Christopher Reeve Paralysis Foundation to purchase more equipment to expand its Spinal Cord & Wellness Program as part of its new ambulatory center.

The campus also recently submitted a request for a virtual reality software and program for use with stroke patients—a $17,000 purchase.

Space constraints can be another concern when purchasing equipment. “That’s part of the reason why we’re building this new center because we’ve had so much growth here. We’re kind of fragmented. We’ve had to put different programs at different parts of our campus because we’re running out of space, so we’re trying to centralize and consolidate all our outpatient areas,” Hyland says.

CASA COLINA: THE FUTURE IS NOW
While Good Shepherd has just started its building project, Casa Colina Centers for Rehabilitation, a nonprofit facility with inpatient and outpatient services in Pomona, Calif, is winding down the transformation it has undergone over the past few years.

Casa Colina’s transformation has included the rebuilding or renovation of such things as a wellness center, children’s facility, medical office building, long-term care facility, and adult day health center.

The project will culminate in a new single-story, 78,000-square-foot rehabilitation hospital, as well as an imaging center and ambulatory surgery center, scheduled to open in the first quarter of 2005.

The hospital is relocating from an existing structure to a new facility on the 20-acre campus. It will have 36 semiprivate and private bedrooms with 68 beds, two hyperbaric chambers, three operating rooms, two procedure rooms, and imaging equipment, including a CT scanner, MRI, angiography suite, fluoroscopy suite, and three ultrasound rooms.

The old hospital will be torn down to create more of an entry to the facility and a park area with “casitas,” or motel-like rooms, to permit family members to stay overnight for a fee.

By December 2004, Casa Colina had spent about $7.6 million on fixtures, furniture, and equipment purchases specifically for patient benefit as part of its entire campus replacement program, with $2.8 million of that for the hospital itself. That includes refurbishing existing equipment and new purchases.

Casa Colina’s fiscal year begins on April 1, but its purchasing plan begins the previous November when managers submit proposed operating budgets for the coming fiscal year, as well as their capital budgets for that year and the following 2 years. “Usually, when they’re looking at the third year, it’s a little bit of a guess on their part,” says John Cherry, vice president of finance. “It’s trying to get them educated that this is not a one-time issue. It’s effectively looking at it over a period of time. That isn’t to say that because they have presented it to us that we have technically approved that second- and third-year purchase. It’s more of a fact-finding and planning process.”

Besides identifying which piece of capital equipment they want, they must also justify its purchase. Depending on the price, more information may be required, such as warranties and maintenance contracts.

The managers present their budgets to Cherry, Felice L. Loverso, PhD, Casa Colina’s president and CEO, and the responsible accountant. If a budget is approved, it is forwarded to the board of directors’ finance committee for a decision. If it gains the committee’s approval, it goes before the full board for a final decision.

If a department does not buy a particular item during a fiscal year, it doesn’t automatically “flow over” to the next year; the purchase has to once again be justified, Cherry says. In those cases, however, there is a bit of latitude as Loverso can make those approvals, up to a certain amount.

Casa Colina uses input from clinical teams and purchasing agents, as well as vendor presentations and off-site visits, when making equipment purchases. Part of the decision-making process also entails whether to buy or lease equipment, whether warranties are offered, how the equipment will save money or time, maintenance, and what kind of revenue it will generate.

Casa Colina’s administrators have also relied on the experiences of other hospitals, especially for the more high-tech equipment. “We don’t mind picking up the phone and talking to the other institutions and asking them what kind of service they have received and what they think of a piece of equipment. It depends on what kind of dollars we’re talking about; the larger the dollars, the more time that we spend on it,” Cherry says. “It really depends on your relationship with other organizations. What they have may work for them and it may not work for us.”

New purchases for the rehab hospital have also included equipment for the imaging and surgery centers, as well as hyperbaric chambers and beds. “We didn’t go into the new hospital with the understanding that we needed to buy all of the equipment in the beginning. We bought some of the equipment [before], like some of the beds we bought over a year and a half ago,” Cherry says.

The wellness center required a sizeable investment in equipment, Loverso says, because the hospital did not have that facility before.

While some decisions came easily, deciding on some of the pricier equipment was more difficult. “Obviously, the CT scanners, the MRI, the angiography suites, PACS system, and things like that were a much more arduous task. When we’re spending $1.2 million to $2 million per piece of equipment, we’re very, very cautious in how we proceeded,” says Loverso.

Over the years, there has been the occasional purchasing pitfall for Casa Colina. About 4 years ago, the hospital purchased a $100,000 computer system to help its nursing staff access supplies and drugs.

The only problem was that even though the purchase was supported by management and other staff members, and some training was given on using the system, some staff members were resistant to switching to the computer-based system. “It wasn’t effectively being utilized and $100,000 just doesn’t grow on trees,” Cherry says. “We went back and we reengaged and now they love it. It was a matter of trying to get them educated. We learned that even though there is support for something, unless there is that education by the vendor and it’s continued with follow-up in ensuring that if there’s a particular challenge, we meet it [the equipment won’t be used].”

The biggest purchase currently being considered is an electronic medical records system. “That’s the hot item right now that we haven’t purchased, but we’re spending a great deal of time looking at this,” Cherry says, adding they have spent about 6 months on the topic. “It’s not a $100,000-piece of equipment; it’s multi-times that. We have a team looking at it, and we’ve gone so far that we’ve asked a consultant to assist us with it too.” Such a system could cost the hospital $800,000 to $1 million.

With all of the changes at Casa Colina, in addition to the usual equipment purchasing routine, its administrators have had to get creative in stocking the facility in order to save and stretch funds where they could.

Part of that creativity came in refur- bishing old equipment. “We didn’t go nuts,” Loverso says. “Instead of spending $350 on a chair, if the frame was good, we refurbished it and did that for $75. So we were able to get a brand-new look for a lot less.”

Loverso says he and Cherry got together about 4 to 5 years ago and “went over the institution inch by inch” by using another creative method. “We really researched the equipment that was necessary. We built mock rooms 4 years ago and equipped those rooms in some of the unused areas of the hospital. We built the rooms as they would look 4 years later, as exact replicas, so we should be very, very accurate with our equipment,” Loverso says. “Once we got the footprint for all the various buildings, we started going through those buildings, started bringing in key clinical people, nursing first, then PTs, OTs, speech pathologists, and really went through equipment needs. We then went out to purchase on competitive bidding, and I think we came up with some wonderful deals.”

He and Cherry were involved in every step of every decision—from a bedside table to a CT scanner—something about which Loverso can now laugh. “We’ve been living and breathing this thing. We’re actually quite good at it now,” he says.

Danielle Cohen is staff writer for Rehab Management.

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