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Allen Archer is system manager for capital planning for the Wellmont Health System, a 10-hospital health system based in Kingsport, Tenn. Archer spoke recently with Healthcare Finance News Editor Richard Pizzi about how Wellmont handles capital procurement, and he offers insights on national trends in capital spending after a deep recession.
What are the challenges of managing the capital procurement cycle at a health system like Wellmont?
We have 10 hospitals, with 1,500 licensed beds and 230 providers, and we serve patients in Tennessee and Virginia. In a system like ours, all capital planning and project management is centralized. Wellmont has a total capital spend of approximately $350 million, and it has been essential to automate our capital budget review and approval process in order to stay on target. We’re now completely automated, from the capital budget creation and requisitioning process to purchasing and the reconciliation of expenditures.
How do you describe your role in the process?
It’s my responsibility to manage anything associated with capital spending within the health system. I need to manage all capital purchases above $1,000 – that includes everything from contract management to negotiation to spend, as well as project management and anything in between. A manager must have visibility and control, a strategic plan and a vision in order to do this job right. Prior to 2006, Wellmont had processes that were inefficient. We had paper processes for capital requisitions which led to incomplete and inaccurate information. During the requisition process, we had to individually check our spreadsheets for construction and purchasing against the finance spreadsheets. We had problems with capital data retention and so we developed a lack of confidence in the data.
What impact did the recession have on capital procurement at Wellmont?
In 2007 and after, the scarcity of capital became a problem for us – as it did for most hospitals – which subsequently froze capital spending. We went from a $30 million capital budget to about $14 million. Any projects already in progress we kept going, but we didn’t initiate anything new. In a recessionary environment, you must have analysis and justification for every spend. There has to be a return on investment, and you have to show a direct link to revenue. We began looking for high returns on everything we put our money into, and we still do.
What’s new as 2011 begins?
This year we have a $46 million capital budget. Now that we’re automated and have eliminated paper processing, I can track spend easily and this means we can better maximize our dollars. We have saved upwards of $15 million in capital costs through automation.
Given the current economic environment, what’s your sense of where capital procurement trends are headed?
Those health systems that have good credit will be able to bounce back. The credit markets are opening a little bit and that should encourage us. Operating budgets could increase. Even in a tough market, we have to invest in infrastructure at our facilities. The HITECH Act will require $30 million alone in IT investment. Information technology will dominate our spend, but we still have other issues, such as old beds that must be replaced. As for market trends, I see physicians lining up to become employees of health systems. And you’re going to see joint ventures like you’ve never seen before.