Capital management critical

"Hospitals' ability to obtain the necessary funds to upgrade their facilities or invest in new clinical and information technologies is severely restricted due to the capital crunch and the recession," says American Hospital Assn. (AHA) Spokeswoman Elizabeth Lietz. "Hospitals primarily rely on borrowed money, philanthropy and reserves to fund capital projects to improve their ability to meet communities' healthcare needs, but many now find it difficult to obtain funds from these sources."

The vast majority of hospitals report that borrowing funds through tax-exempt bonds-the main source of borrowing for most hospitals-is difficult or impossible, according to AHA.

For executives, business as usual is no longer acceptable, says Tim Olson, senior vice president and CFO of ThedaCare Inc., a community health system in Appleton, Wisc.

"We are in an industry which has historically been recession proof. This is not the case in the current recession as the tax-exempt bond market has slowed, coupled with significant concerns about volumes," Olson says. "With the two main sources of cash slowing down, we need to manage our capital spending accordingly, making sure we invest in the right projects. Critical management of capital expenditures is required to successfully make it through the current economic conditions."

LOOK WITHIN

While tight financial markets are external barriers to capital investment, some hospitals are looking internally to find ways to see and eliminate waste-improving internal processes and ensuring they are investing in projects with the greatest pay-off, patient care and profitability.

On January 1, ThedaCare implemented a toll gate review process for all new and significant capital projects. This has slowed the movement on capital requests in the first month of the year, according to Olson.

"We are evaluating our financial position on a regular basis and will adjust the flow of 2009 capital spending as we understand our volumes and expense levels," he says. "Existing/prior-approved projects have not been affected by this change. Should our financial situation significantly deteriorate, we would evaluate these projects as an option for management of our business."

ThedaCare is better positioned to manage its business because of its continued focus on lean management, Olson explains. "ThedaCare continues to work with . . . provider[s] of lean management services to evaluate our processes and take waste and cost out of our system that do not add value to the patient on a regular basis."

IT projects in 2009 will follow the same toll gate review process as Olson previously describes. "In 2009, ThedaCare will continue to invest in minor IT projects," he says. "If evaluation tells us at the toll gate that there is a significant benefit for us to invest in a significant project, we would strongly consider proceeding with this, as well."

-Tracey Walker Commentary is independent of source data