Collaborate to strengthen healthcare facility budgets

It’s Monday morning, and your radiology department is in crisis. While the state-of-the-art imaging equipment is only a year old, the surrounding infrastructure is aging. Now, the mechanical systems that maintain proper storage conditions for the uninterruptible power supply (UPS) batteries are malfunctioning, putting imaging operations at risk of interruption.

The year before, the facility management (FM) team had requested funding to modernize the outdated infrastructure—but leadership instead prioritized investments in a hospital wing refurbishment. Fortunately, your FM team is able to cobble together a temporary UPS solution to keep radiology operational until new building equipment arrives in four to six months.

It’s no secret that healthcare FM teams are often required to find creative solutions to maintain patient care despite unfunded maintenance emergencies. While the typical hospital can use corporate emergency funds to cover unplanned capital expenditures, the net result is more costly than necessary—and also can put caregiving operations at risk. 

The c-suite/facilities disconnect

As the healthcare industry continues its unprecedented consolidation, healthcare delivery networks have grown increasingly complex with the expansion of outpatient care. Collaboration between the C-suite and boots-on-the-ground experts has never been more important— or challenging.

All too often, CFOs or controllers— despite regular input from their FM teams—are prioritizing investments that drive physician recruitment and revenue creation over the replacement of aging equipment and other behind-the-scenes capital improvements. In the scenario above, for example, the crisis could have been avoided if the healthcare systems’ FM teams and the corporate CFO had collaborated to create a holistic capital plan for the entire organization. Coupled with leading FM practices for reducing operating costs and capital expenses, a united budgeting approach could reduce facilities costs and free up resources for patient care.

Today’s complex health systems demand a thoughtful, centralized approach to facilities budgeting to better conserve resources for patient care. A more systematic approach to facilities budgeting and operations can have a dramatic impact on reducing costs and compliance risks, and improving real estate asset performance across a healthcare system. Most important, FM and C-suite partnership means better support for patient care from a facilities perspective. 

The pitfalls of siloed facilities budgets

Under the traditional budget process, the FM team at a particular facility may have no input into their budget and may not even know what their budget is unless a problem arises. As a result, the FM team may have little control over prioritizing equipment repairs and replacements, or allocating funding to new hires or training.

For example, when FM teams are excluded from the budgeting process, the CFO may not allocate adequate funding to deferred maintenance. As the deferred maintenance backlog begins to mount, the result is spiraling expenses—and compliance risks—as equipment that has not been properly maintained malfunctions or fails altogether. Multiply the impact across an entire healthcare network of numerous facilities, and exposure to unanticipated patient and financial risk is inevitable.

In some cases, the CFO of a particular facility, or for the system as a whole, may be far removed from daily FM operations and not fully aware of daily FM pressures. Siloed facilities operations make it difficult to identify and prioritize essential capital investments across a healthcare network, capture volume-driven purchasing discounts, and adopt leading FM practices—such as preventative maintenance—that reduce costs and risk while improving patient outcomes.

The steady flow of healthcare organization mergers and acquisitions has further exacerbated the challenge of facilities budgeting. Following multiple mergers, a healthcare organization may lack a centralized source of data about facilities spending or projected capital needs. Different facilities may use completely different FM work-order management systems and budgeting approaches, making it difficult to compare facilities budgets against systemwide or industry benchmarks.  

A better way to create the healthcare facility budget

In contrast, some healthcare organizations are adopting new approaches to facilities budgeting as part of a drive toward greater “systemness”—managing facilities as a single system rather than as individual business units. One reason is that real estate systemness reduces operating costs by 12% to 18%, in JLL’s experience, while also improving regulatory compliance, reducing energy waste and providing a consistent brand experience for patients across the healthcare organization. Just as preventive medicine helps patients maintain good health, real estate systemness can help keep facilities functioning smoothly across a healthcare organization.

Regarding budgeting, progressive healthcare organizations are engaging their facilities teams in the budget process from the beginning—at every facility. While facility-level involvement may increase the complexity involved, the collaboration of the FM leadership, sourcing and the CFO or controller leads to much more accurate budgets and more strategic allocation of capital at the facility and system levels. 

Facilities budget collaboration in action

At one West Coast healthcare system, the facilities budget process starts with site-specific budget templates provided by the corporate finance team. The sourcing team populates the templates with fixed FM costs, such as fire and life safety inspections, uniforms and standard supplies. Then, the FM leads at each facility incorporate general ledger data and historical data into the budget for senior FM leadership review. The senior FM lead reviews the data with the individual facility CEO and CFO before incorporating the FM budget for each facility into a districtwide or systemwide FM budget.

Analyzing spending on equipment maintenance to inform capital planning is another important part of the budget process. Ranking capital projects by impact, return on investment and other factors enables the healthcare organization to create a data-driven capital plan that prioritizes projects and ensures that funding is available to address the top priorities. When a project like renovating an intensive care unit can cost millions, prioritizing projects is critical to ensure high-quality patient experiences and outcomes. 

Collaborative, early budgeting is a step toward real estate “systemness”

As the healthcare industry continues to evolve, timely, accurate and early facilities budgeting will be more important than ever to support care delivery and strategic capital allocations. The continued shift to outpatient services and integrated delivery networks will add growing complexity to facilities operations, requiring a more systematic approach. Collaborative FM budgeting is an important first step toward the real estate systemness that will help healthcare organizations thrive into the future.

Ready to take a more collaborative, centralized approach with your facilities budgeting? Start the conversation with our experts here.