As the Partnership prepares for the 2011 National Meeting Series, we are uncovering insightful practices that we would like to share with you. Just recently researchers spoke with administrators at member health systems to ascertain the percentage of profit allocated for the next year's capital expenditures and wanted to share our findings. Each of the systems we spoke with explained that capital budgeting is done as a system and that they do not have direct control over the amount of capital allocated for new technology purchases. Administrators prefer this process over siloed control of capital budgets as the system focused method promotes collaboration and allowed for the hospital to better adhere to its strategic plans.
While each hospital varies slightly in their methods of capital budgeting, they all employ four common steps. First, each department submits a list of capital requests, with appropriate justification, to a central leadership team. Next the system leadership determines which requests could potentially receive funding based on the amount of capital allocated to them by the finance office. Once that is complete, the system leadership then considers which requests are the highest priority based on age of equipment and alignment with the system's strategic plan. In the final stage, the leadership team makes the final determination of which requests to approve, either independently or in consultation with the directors.
In addition to the yearly capital budgeting process, each organization has a "contingency pool" of funds that could be used for emergency purchases, such as the replacement of equipment that has broken down unexpectedly.
It is important to also note that none of the institutions we interviewed knew exactly how their allotment of capital was determined by finance. This "black box" process is frustrating for some directors but all overwhelmingly prefer this method to having complete ownership over their capital budgets. Each organization notes that while they were unsure how capital was allocated amongst the various sites and service lines, they feel that they generally receive funds necessary to accomplish their strategic goals.