Being a good steward of health care finances

Facilities managers can learn by developing a relationship with colleagues in the health care organization’s finance department.

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Health care facilities managers have long lists of needs that require more resources than are available, but each department also is in the same situation. Nursing, operations, surgery and support services have equally long lists of needs, all of which are competing with the facilities department for resources.

This is why a health care facilities manager needs to be a good steward of the financial resources they receive by managing waste and making sure the highest level of value is achieved.

Resources and challenges

Resources include budget funding and staffing. Both are managed and allocated in partnership with the finance department. Often, a facilities manager will view the finance department as an adversary. However, the finance department actually is a valuable partner because it shares the common goal of being efficient and effective.

The finance department can partner with a facilities manager to address challenges that arise in the physical plant. These include escalating costs for labor and materials, evolving technology and managing waste by making sure the resources are being used as anticipated. A facilities manager must demonstrate the value of the department, especially when impacting patient care downtime. Preventive maintenance may only take hours over a few night shifts to accomplish on a system, but it prevents a more catastrophic failure that could take days or weeks to resolve.

This downtime has definitive value to the patient care mission. Unplanned downtime is more open-ended and disruptive, while planned downtime can be anticipated and dealt with in advance by operations, finance and care teams.

Determining true value for budgets is a complex process. In the ever-changing health care landscape, simply using figures from the previous year is not effective. Zero-based budgeting is the proper way to go because it requires discipline to break down a budget to the essential elements needed to run the department.

This approach also calls for the facilities manager to understand the strategic direction of the organization by communicating with peer leaders on expansion of programs, whether in the hospital or in an outpatient setting. This collaboration also prioritizes otherwise deferred maintenance needs in certain areas, from those as simple as stocking spare parts to minimize downtime to full replacement of systems at the end of their useful lives.

Finally, the realities of the regulatory environment can be discussed in a zero-based budgeting exercise. Not all maintenance activities happen every year, such as smoke damper inspections, so carrying those costs every year takes resources away from other needs.

Staffing costs

Staffing is managed as tightly as budget dollars in health care. The priority of hiring staff in a health care organization is foremost for the bedside to help facilitate patient care and healing. As facilities expand their footprints, either by adding to the hospital or to outpatient areas, the maintenance staff is expected to cover this space, often without adding staff to the facilities department.

Because it is important for continuity and minimizing utility disruptions, facilities management requires making the case for staffing resources. The primary case is avoiding disruption to care, with a broader extension to overall business continuity. Hospital staffing is greater during the workday, generally from 8 a.m. to 5 p.m., because quick responses are needed to minimize downtime and disruption to care. Although smaller in number, the facilities staff is vital for maintaining continuity.

Facilities staff is not viewed as revenue-generating, like clinical professionals, but productivity still can be measured. Key indicators, such as number of work orders per full-time equivalent employee, number of work orders per square foot and dollars per square foot spent on staff and downtime all can be tracked by finance. Making sure every staff position is busy, productive and in position to help support the patient care mission must be justified to the financial team. These benchmarks lay out the case for a facilities department.

Benchmarking staff levels based on facility size; patient volume; and facility type, such as academic medical center, community hospital or rural hospital, also are ways to ensure that the facilities staff is sized correctly to support operations. These benchmarks state the case in terms that the finance team can understand to justify the needs of the facilities department.

It is one thing to understand the benchmarks and goals, but facilities managers should be able to articulate the meaning behind the numbers. Many articles and publications can be accessed to help understand benchmarking data, and having good mastery of the benchmarking data is crucial during a conversation with the finance department about needed resources.

Budgeting basics

Achieving the dollar budget, including resources for service contracts, the inevitable failure of a system or piece of equipment, and purchasing and stocking crucial parts to minimize disruption, all are part of the financing process.

Budgeting could feel like a negotiation, which, in fact, it may be. However, the tactic of starting high and settling lower may not work in this setting. For example, if a manager knows they spend $50,000 per year on air filters and this is recorded in past invoicing, it is not wise to ask for $100,000 for air filters. This could demonstrate that the manager does not have a true handle on their costs.

To make the process go smoother, it’s best for facilities managers to start with their most supportable figures to make it more difficult to cut. If cuts are necessary, this leaves the manager in a better position to articulate the impact of the cut. For example, if the budget for air filters is cut from $10,000 to $5,000, risks occur from less frequent filter changes that could impact critical areas or the quality of the air in sensitive spaces. Starting with the most justifiable number is the strongest position for a facilities manager.

Repairs often are subjective in budgeting. It is wise to budget for at least some repairs per year. These can be articulated through run rates over the most recent years and even some predictive analysis to show which systems are vulnerable. Ideally, systems exist on a deferred maintenance list, where a separate project can be underway to correct them.

Deferred maintenance, which rises to the level of capital, also should be carefully planned, with full transparency about the risks in letting a system go another year without funding. Proactive preventive maintenance saves on downtime versus a break-fix mentality, in which an area goes down and the facilities team must wait for more expensive repairs before it can be brought back online.

Demonstrating awareness about the physical plant and articulating it to the finance team and leadership in the context of preventing downtime can get the best response. Of course, there is limited budget funding, but the care and operational teams can help prioritize systems that should receive deferred maintenance dollars to support patient care.

When working with established budgets, the costs should be constantly reviewed to ensure the numbers are on track. Projecting variances is a key piece of being a good steward to an established budget.

On one hand, if overages are being projected, the finance department needs to be prepared to address the issue. This is particularly important if it is an expenditure that helps maintain continuity of operations. On the other hand, if the department is doing well and running ahead of budget, it is important not to tie up resources that are best spent elsewhere to support the patient care mission.

Either way, understanding budget status is the best way to interface with finance and to make sure the goals of the facilities department are being reached while managing the resources of the overall organization.

Helpful tools

A primary tool for planning budgets for both capital projects and maintenance-level system upgrades is value engineering (see the related article below). These principles can be applied to much more complicated and expensive elements, such as electrical, mechanical, plumbing and fire alarm systems.

The maintenance team’s knowledge of efficient system management can be brought into the value engineering exercise for the design engineers and architects to provide the simplest solution possible to achieve the desired goal. By eliminating unnecessary scope, the value of the project is protected.

Resources to bolster financial prowess for health care facilities managers include the American Society for Health Care Engineering’s (ASHE’s) Optimizing Health Care Finance: The Facilities Manager’s Handbook and Introduction to Health Care Facilities Management. They are designed to help readers better understand the financial end of a health care organization, which leads to better communication with the finance team for more tangible results.

Another tip is to work within the financial systems of the health care organization. Their financial tracking is normally very effective, so it is best to learn it as a manager or director. If a facilities manager has a homegrown or alternative tracking method, time can be wasted reconciling figures or gaps, and resources could be denied because the need is not properly demonstrated.

A facilities manager often does not have time to get a degree or certificate in finance to learn all the details of financial management. In such cases, the best approach is to develop a relationship with colleagues in the health care organization’s finance department. The finance department is there to support budgeting and tracking its success. The facilities manager must engage with the finance department and describe how expenditures hit and how cash flow moves through the facilities department.

Facilities departments are unique in the way expenses occur because an action may take place for a repair, particularly in an emergency, but the costs may not be processed until much later. Describing the dynamic of the facilities department helps foster the relationship with finance, but the dynamic runs both ways. Listening to what the finance department is looking for and providing the information the way they need it, by way of format or timing of information, goes a long way in telling the true financial picture of the facilities department and, therefore, the organization.

ASHE’s resources can help a facilities manager approach the finance department in a meaningful way and lay the groundwork for them to understand finance in their organization. These tools expose the learner to the basics of finance and enable more fruitful dialogue between finance and facilities that focuses on the facts of the operation, rather than arguing over the numbers on a page.

Maintaining stewardship

Within a health care organization, there are many levels of expertise to deliver good health care for patients. Each level, whether it is patient care, operations or facilities, is competing for resources.

Maintaining good financial stewardship through skill sets such as zero-basing, value engineering and benchmarking protects those resources for the facilities department and the overall mission of the health care organization.

Related article // Practicing true value engineering

Value engineering can be very effective, but the term often gets confused with cuts to project scope. People often say an element of scope was “value engineered out” when it was removed from the scope without replacement to solve an issue.

True value engineering takes a design or engineering solution and makes it more efficient to achieve the same result. The principles of value engineering in a construction project can help make decisions on the operational side. Similarly, problem-solving on the operational side can inform a good value engineering exercise for a capital project because the operational team is used to solving problems on a shoestring budget.

The value engineering process is particularly fruitful when the construction and facilities teams participate. A simple example is security hardware on doors. Doors are probably the most complex aspects of a building and one of the few moving parts of the carpentry trade. Doors can be outfitted with magnetic-hold openers for fire protection, closers to make sure barriers are true after the magnet releases, automatic openers when the doors need to remain closed but need assistance when opening for patients or material handling, and swipe cards for security that interfaces with the fire alarm system. It is easy to get a very complex solution on a set of doors.

The value engineering process can take how a facility maintains its doors to stay compliant and bring it to the design team. A door does not need a security swipe, a separate paddle and magnetic-hold openers to achieve the same secure result. The hold opens are not necessary if the door remains closed, and the paddle is not necessary if a swipe badge activates the door opener. This value engineering exercise just eliminated two sets of hardware on a door while achieving the same functionality.

By determining the simplest, most efficient way to solve a problem, value engineering is an important tool to assist in the zero-basing exercise and to bring capital project budgets to acceptable levels.

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Jeffrey T. O’Neill, AIA, SASHE, is vice president of plant operations/facilities at RWJBarnabas Health’s Robert Wood Johnson University Hospital in New Brunswick, N.J. He can be reached at jeffrey.oneill@rwjbh.org.