Industry Insight – The New Healthcare Capital Cycle

OneEQ’s Rick Leonard and Nik Fincher talk about getting the biggest bang for your healthcare organization’s bucks when buying equipment

Did you know that 45-50% of the total cost of a piece of healthcare equipment is its software? Or that the world’s top healthcare and health research organizations are increasingly considering purchasing refurbished or gently used equipment, something that would have been virtually unthinkable ten years ago? How about that the trade-in offer you just received on a piece of equipment can be 60% to 80% less than the market value of the item if you sold it outright? These are just three examples of ways that the healthcare capital cycle has gotten increasingly complex and why hospitals and other healthcare organizations are rethinking how they do business, especially when it comes to technology and medical equipment.

The Changing, Increasingly Complex Playing Field

For those who need a refresher, before the Affordable Care Act, hospitals made money based on a payment-per-procedure basis. If a patient got an MRI, for example, the hospital was reimbursed a pre-determined amount based on that procedure. The ACA changed that model with a Medicare program called the Value-Based Purchasing Program (VBPP). Now, providers are paid based on the diagnosis and outcomes and not on individual tests. That means an MRI is no longer a stand-alone service—it’s an expense bundled into the calculus of a comprehensive treatment plan. So, for instance, if a patient comes in with kidney pain, the clinicians will determine what’s causing the pain. If they determine that the cause is kidney stones, the hospital will be reimbursed for the entire treatment plan for kidney stones, not for each test that led them to the diagnosis.

Certainly, part of that bundle payment will offset the cost of the equipment and technology used and there is a return on those assets, but it’s much more complex than the old formula of ROI (return on investment), or “This MRI machine costs X, and I will perform Y number of scans per year and get reimbursed Z amount, so it will pay for itself in 3 years.” Today it’s about ROA (return on assets), meaning all of a provider’s assets must work together to produce the desired outcomes. It’s a much more sophisticated way of thinking about the capital cycle of a single piece of equipment, let alone an entire health system. Couple that with the fact that every healthcare provider in the world is trying to cut costs and add value, and you can see how much this new model has affected the healthcare capital cycle.

It’s New to You

Speaking of adding value, refurbished and/or gently used equipment is a hot topic in the industry right now and for good reason. A decade ago, top facilities wouldn’t have even considered buying refurbished or slightly used equipment, but market dynamics are making it more appealing. Here, too, the calculus is complex.

It’s crucial to know when it makes the most sense to go used—today’s refurbished equipment is an entirely new generation with the latest technology making some gently used equipment nearly as good as new. Hospital beds are a great example—bed frames have changed very little over the years, it’s all the bells and whistles that attach to it that have grown in complexity. If we can reuse the frame, it can reduce the cost by up to 40% compared to the cost of a new bed. Multiply that over hundreds or even thousands of beds across a health system, and it’s clear why more hospitals are moving in this direction. We’ve also worked with top-tier clients who consider gently used equipment for temporary facilities when moving from one building to another; this can often save millions of dollars and has no detrimental effect on patient care.

Of course, good equipment planners must think about refurbished assets from every angle—you have to make sure it’s a reputable firm, that the refurbisher offers a warranty on the equipment, and that the acquisitions and logistics team know all the players, inside and out.

Trade or Sell on the Open Market?

On the other end of the acquisitions spectrum you have healthcare organizations trying to offload their existing assets when upgrading to new equipment. Should they try to sell it on the open market or trade it into the manufacturer? Trade-ins are certainly less complicated than trying to sell, but let us illustrate the situation with some cold, hard numbers: Manufacturers typically offer 18% of the true value of a piece of equipment. Across the healthcare industry, meaning there are billions of dollars at stake.

In one recent example, we worked as an “owner’s representative” for a client to replace six catherization labs. The vendor who was awarded the business for the new labs offered $10,000 per lab as a trade-in on the equipment being replaced. The actual market value for the equipment was closer to $50,000 per lab, meaning our client was leaving a lot of money on the table, money that could be used in many ways.

Of course, it takes real expertise to broker a deal like this, and not everyone will have these dramatic consequences. In some cases, a trade-in may make more sense if a number of clinics or hospitals are closing their doors and flooding the market with similar equipment. Or, on the other hand, some equipment, such as a particular mobile x-ray machine that was popular in the 1990’s, is still one of the most popular models in 2019 and providers are willing to pay top dollar for it. It’s crucial to have a team that understands the equipment and its functionality so that it’s presented to the market in top condition (e.g., don’t let a contractor cut electrical or communication connections). It’s also important to plan effectively so equipment doesn’t get damaged when moving it from place to place. These are the nuances that make working with a tried and true equipment planning, logistics and acquisition team worth every penny.

HCAHPS Scores—The Link to Equipment Planning and Healthcare Design

Hospital reimbursement rates are increasingly based on outcomes and the patient experience, as measured by the HCAHPS survey. OneEQ’s Jeff Davis explains how the right equipment planning and design can make all the difference.

Ever since the Affordable Care Act made hospitals dependent on the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey for full reimbursement, healthcare organizations have started thinking about new ways to enhance the patient experience.

Not everyone has been happy about this shift, but, regardless, patient experience has always been a core part of clinical philosophy. As new research and evidence comes out, and HCAHPS scores provide insight into how patients are experiencing the healthcare environment, the best design and planning strategies that can improve that experience are rising to the top. In fact, U.S. News recently updated their method for scoring the best specialty hospitals, incorporating HCAHPS scores and putting a stronger emphasis on the patient experience.

And lest you think that higher survey scores are only meaningful on paper, the truth is that increasing HCAHPS scores can have a two-fold financial benefit. First, with hospital scores now in the public domain, patients can be savvy healthcare consumers and choose healthcare institutions with the best patient experience. Clearly, more patients means higher revenue. Second, the scores translate directly into dollars, with a portion of Medicare and Medicaid reimbursements tied to the HCAHPS survey; hospitals that perform better than the median in their region are rewarded with higher reimbursement rates and lower performing hospitals are penalized. In turn, private payers typically base their reimbursements or contracted rates on Medicare reimbursements, so it’s easy to see that improving HCAHPS scores is becoming a financial imperative to most institutions.

The survey itself only takes a few minutes for patients to complete and the questions fall into three categories—staff communication and responsiveness; cleanliness and quiet; and overall patient experience. The right equipment planning and design can make a big difference in moving the needle from a mediocre patient experience to an excellent one.

Staff Communication and Responsiveness

More than half of the questions on the 32-question survey fall into this category and they’re all about how patients feel that they’re treated by nurses, physicians and other staff—were they respectful? Did they explain medications and instructions in a clear way? Did they listen carefully? And did the patient understand everything? Clearly, these questions can depend a lot on the personalities involved, but that doesn’t mean that design can’t play a role in improving scores to these questions.

The physical environment can certainly affect staff and how engaged they are with patients and designers can use a number of strategies to enhance well-being.

Specific material selections can reduce noise and absorb the impact of a 12+ hour shift. Then there’s the design program for the hospital, which should include space for staff and outdoor areas for both patients and staff, which has been shown to help with healing. The quality of staff “off stage” areas can make a major difference, giving nurses and physicians social spaces to interact, but also quiet, private areas to process some of the inevitably overwhelming emotions that come with the job.

Including staff in hospital initiatives, the hospital planning process and addressing their feedback early on can help ensure that staff are getting the resources they need to exceed patient expectations.

The HCAHPS survey also asks if staff explained medication and recovery instructions properly with the goal of shortening healing time and reducing errors in combining medications and other complications. Good communication is part of the culture of a health organization—doctors used to sit behind a desk and tell you what you needed to know; these days, they’re more likely to have a laptop and show you a screen with your medications on it, asking you to make sure everything looks right. By including staff in the planning process and addressing their feedback early-on, designers and equipment planners can create the best physical environment to help hospital staff communicate with their patients on an equal level, encouraging patients to feel more involved in their own healing process.

Cleanliness and Quiet

It may be easiest to see how design and equipment planning can improve scores on survey questions about quiet and cleanliness, since they relate directly to the built environment. Indeed, if a designer has a proven strategy to make a facility cleaner and quieter, hospitals are likely to listen, especially because the biggest complaint on the HCAHPS survey is about noise in the hospital.

There are plenty of materials that can help, like special floors, soft-close doors and drawers, and ceiling panels that can reduce noise. There are engineering solutions like triple demising walls and double-layered flooring. Designers and planners can even change the layout of a hospital unit to carry less noise. Hospitals can encourage quiet by using lights that are programmed to dim during quiet hours in the afternoon, and equipment with lights that change color as noise levels increase so that staff and visitors get a visual cue that they’re being too loud.

The other component of this section of the survey, cleanliness, is really asking about the patient’s perception of how clean their room and bathroom were, but hospitals have other reasons to focus on cleanliness; under ACA rules, if a patient contracts a secondary infection while in the hospital, the hospital isn’t reimbursed for the patient’s stay while they recover from that infection.

We all tend to think of cleanliness as a housekeeping issue—things like easily cleanable, antimicrobial materials and finishes. But cleanliness is also a clutter issue; if there isn’t adequate storage for equipment and supplies, it makes people think it’s messy, even if it might be germ-free, which speaks directly to equipment planning, layout and overall design.

As equipment planners, our OneEQ team works with designers to create room mock-ups and prototypes. We have clinical staff go through these prototypes and provide feedback as they go along. Added to that, we combine our own research, industry trends and our 30 years of experience to buy the best possible equipment for a given situation and place it to reduce clutter, increase hygiene and, consequently, enhance the patient experience and increase HCAHPS scores.

Overall Experience and Recommendations

There are only two questions under this category: 1) Using any number from 0 to 10, where 0 is the worst hospital possible and 10 is the best hospital possible, what number would you use to rate this hospital during your stay? And 2) Would you recommend this hospital to your friends and family?

These two overview questions give the most substantial insight into the patient experience. It’s really about what we remember. If any of us walk away from a hospital with a good feeling, even if we can’t necessarily pinpoint an aspect of the design strategy that made us feel good, we’re more likely to give a positive review of the institution.

Clearly, if a patient feels that they were well cared for by nurses and doctors, and that the hospital was clean and quiet, they’re going to have a pretty positive impression. But there are other things that can help push them into a positive mindset. Some hospitals are creating special toolkits for patients that are having trouble sleeping with an eye mask, ear plugs and calming essential oils—these amenities may help with insomnia to be sure, but it’s also just one more opportunity for nurses and doctors to show patients that they care and understand what the patient is dealing with.

The Final Score

As the political winds shift and the Affordable Care Act goes through changes, the HCAHPS survey continues to have a great deal of influence on how hospitals operate and how they are reimbursed by both public and private payers. By using equipment planning and design strategies to increase HCAHPS scores, healthcare organizations and clinicians will necessarily improve patient experiences and enhance health outcomes, increasing their reimbursement rates in the process.

 

Jeff Davis

Jeff Davis takes a pragmatic, no nonsense approach to everything he does—from project planning through equipment selection and purchasing as well as project activation and clinical analysis. Whether new construction or renovation, a 1.2MSF replacement hospital or a cardiac cath unit, Jeff brings it home.

The Unexpected Future of Healthcare: How Integrated Project Delivery is revolutionizing hospitals

OneEQ Vice President Irene Bickell explains why IPD is becoming an essential part of hospital construction

When people think about the future of healthcare, they typically think about new technologies, procedures and tests that will speed healing times, cure complex illnesses, and enhance the overall patient experience. Certainly, those advancements will change how physicians work and how patients are treated, but I would argue that healthcare is being revolutionized by a process put in place long before a hospital’s first MRI machine is purchased: Integrated Project Delivery, also known as IPD. To be clear, IPD isn’t a new concept, but as hospitals and healthcare facilities become more and more complex, IPD is becoming the way forward for any value-conscious organization.

 

IPD post One EQ

What is IPD?

Just as it sounds, in healthcare, IPD is a process for designing and constructing hospitals that integrates the entire team from the very beginning, including the owner, architect, engineer, general contractor, equipment planners, interior designers, practitioners, and even the BIM and Revit teams. The financial structure is integrated as well, with every “trade partner” (i.e., the architect, engineer, equipment planners, etc.) taking on risk.

In practical terms, that means everyone on the team is working toward a common goal and, together, almost operating as their own company, although they remain employed by their respective organizations. As anyone in construction can tell you, the relationship between these entities isn’t always amicable on a non-IPD project. Once the team makes the shift from an adversarial relationship to a cooperative one, true innovation, cost savings and excellence become the new goals.

Benefits of IPD

At OneEQ, we are strong proponents of IPD and we truly think it’s the way most future hospitals will (or should) be built. IPD is not ideal for every project, but it has some very clear benefits for most healthcare organizations.

Value and cost savings. Our experience backs up the research that shows when trade partners are treated as one team from the beginning, we head off potential problems before they become expensive change orders that affect the construction schedule, all of which can affect the bottom line of a project. Each trade partner’s profit is at risk, which is a powerful motivator to make sure everyone is bringing their best, value-driven ideas to the table.

Collaborative Attitude. IPD means more teamwork and a better work environment where innovative ideas can thrive. When a challenge comes up, rather than having one organization blame another or avoiding litigation as the main goal, we come together as a team to figure out the best person or sub-team to solve the issue. Finally, healthcare is data and operationally focused and IPD brings us closer to a data-driven, performance-based compensation model for the entire design, planning and construction team.

A Cutting-Edge Structure for Cutting-Edge Hospitals. Most of the organizations we work with are already known as leading research institutions and they want it to stay that way, which necessitates innovation and vision. Through the IPD process, the team can put the best people to work on the toughest challenges, using their expertise to implement new ideas and technologies. In a typical construction project, different teams and experts are brought on at different points of the process, making it more challenging to implement new ideas along the way.

Coordination is a Breeze. This may sound like an exaggeration, but as equipment planners, the value of coordinating hundreds of thousands of moving parts with a cooperative team is incalculable when compared to coming into a project in the final year and dealing with a multitude of contractors, vendors and project team members; if we’re all working toward a common goal, that process naturally goes much more smoothly.

Limitations of IPD

Although IPD is an excellent way to build a hospital, everything has drawbacks.

Every member of the team is involved from the very beginning. This is a major advantage for the most part, but from our perspective as equipment planners, it can be a double-edged sword; we can prevent issues by offering our expertise from the beginning, but because these projects can last for 5-10 years, it can be challenging if not impossible to predict what technology will be available when the hospital opens for patients. We typically solve this issue by including time in the project schedule to re-evaluate planned equipment and technology and assess what new technology would benefit the hospital.

Some owners are reluctant to adopt IPD. The risk structure isn’t as familiar and it can be challenging to explain. Legally, it can be difficult for state owners to adopt this structure.

Your profit is at risk. The nature of IPD means that every trade partner’s profit is at risk. By being efficient, thoughtful and coordinated, everyone stands to make a healthy profit, but there’s always the possibility that the opposite could happen.

The Proof is in the IPD Pudding

OneEQ has completed a number of hospital projects using the IPD model. For us, as equipment planners, the value is significant; for our clients, the value in the tens of millions of dollars, if not higher.

One of OneEQ’s most recent examples is CPMC Van Ness in San Francisco. The hospital takes up an entire city block in the Tenderloin and had a budget of $2 billion. Their were a number of challenges from the beginning, including a very constrained site surrounded by extremely busy roads. As the equipment planning team, our responsibilities included the logistic and deployment of all the medical equipment. We had to figure out how to deliver equipment in large semi-trucks, in heavy traffic, with a very small loading dock. By coordinating with the rest of the IPD team through the process, we created a number of unusual solutions—we utilized an off-site warehouse and broke down everything and disposed of trash and packaging outside of the city to save significant costs. We then brought everything in on smaller trucks and implemented a complex RTLS (Real Time Location System) system for the 35,000 pieces of equipment.

Our team worked with the owner and other vendors to tag everything from the warehouse, where it could then be tracked and pinged as it went from the warehouse to the dock and from the dock to its location within the hospital. This streamlined process omitted the typical manual process, saving about 15-20 minutes per piece. With 35,000 pieces, the client estimates it reduced the project cost by about $150 million.

Now that the hospital has opened its doors, the system continues to save the hospital money by eliminating the time it takes to find moveable equipment—for carts and other equipment on wheels, staff can simply look up an item’s location on the RTLS system instead of walking the halls to find it.

The RTLS process put in place is just one very specific example of how the IPD process saved the project money and continues to make CPMC Van Ness a technologically advanced hospital for a diverse urban community. Each time OneEQ participates in an IPD process, we have seen several of these types of incremental changes that have had a huge impact on the final project—it’s the reason IPD leads to innovation and why more owners and construction teams will fight for IPD in the coming years.

 

Irene Bickell is a consummate planner and organizer, fluent in management transitions and logistics as well as California’s OSHPD requirements and innovative delivery methods. Don’t be fooled; Irene’s a no-nonsense professional who drives results. She has become an IPD convert and loves to tell people about its benefits; just ask her.

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