Setting priorities

Money continues to be scarce, yet health care systems need to invest and reinvest in their physical future to meet strategic needs in the market, modernize aging infrastructures and ensure that the organization is delivering the proper standard of care.

Also, as the delivery of health care continues to evolve, providers are investing in noncore hospital assets such as primary care offices, ambulatory surgery centers and outpatient care centers. With myriad campuses and operating units, facilities department leaders and chief financial officers (CFOs) have many demands, but insufficient resources.

There is no magic formula for prioritizing and deciding which operating units of a health system get funded first. Portfolio prioritization is one of many important pieces of information health care organizations should evaluate when considering funding projects.

Most systems have some form of operating council, comprising operating unit leaders, in which the executives present business plans and make impassioned cases to system leadership for funding their capital projects.

Strategic master facilities plans should be well-conceived and pass initial muster, but when all of these requests are tallied and laid out by the health system CFO across a multiyear cash map, there still are usually more dollars requested than what the system can spend.

The dichotomy is that these individual master plan projects are necessary for the systems to remain sustainable business and care-delivery entities. Thus, it is easy to see how a system can tie itself in knots trying to make funding decisions when the questions are, "Do we invest in an aging facility in an important core nongrowth market or invest in a facility addition on a campus in a growth market?"

Fortunately, there are tools to analyze and evaluate master plan projects across a health care system, allowing organizations to create a systemwide portfolio of master plan capital projects that prioritizes them based on a set of criteria, understanding the system has a finite set of capital resources.

Developing a plan

The first step to assist leadership is to develop multiyear strategic master facility plans (SMFP) for each operating unit that typically look out five to 10 years, and then prepare a comprehensive portfolio of all the SMFP projects. It is important to break these SMFPs into separable, stand-alone groupings of projects.

Typically, an SMFP is multifaceted and has numerous related projects that can be grouped into "tracks" of investment. These tracks can stand individually and be funded separately.

For example, one track may be the construction of a new patient tower to meet a growth opportunity that also has several interrelated make-ready projects, and another track may be an exterior recladding and replacement of windows on part of an aged building. Both are necessary projects, but can be funded and completed independently. It is important that cash-flow projections be developed on a quarterly basis for each track so the projected spend for all projects can be predicted over time.

The next step is to compile these operating unit projects into a master plan portfolio. It should be an easily digestible summary for operating unit and system leaders, and should be in a spreadsheet matrix format so that data can be sorted, filtered, summarized and utilized easily for graphic representations of a multiyear "spend-ask" cash map.

At minimum, the matrix should capture the following information as data fields:

• The operating unit name (e.g., Memorial Hospital or Main Street Ambulatory Campus);

• A master plan projects track identifier (e.g., MH-1 for Memorial Hospital Track 1);

• A brief master plan project track description that summarizes the major components of the track (e.g., new 60-bed replacement tower, expanded lobby, expanded operating room suite to add four operating rooms and related site improvements);

• The primary nature of the project such as infrastructure (e.g., boiler plant or roof replacement), standard of care (e.g., conversion to all-private rooms) or strategic (e.g., a new digestive disease center to gain a competitive advantage, meet growth projections and provide space for new medical staff recruits);

• The overall estimated total project cost for each track, from planning to occupancy;

• The estimated total project schedule for each track showing start and end dates, from planning to occupancy;

• An overall comparison score.

The portfolio should be reviewed with operating unit leaders to ensure accuracy, and then augmented by providing each final operating unit SMFP and related documentation as an appendix. This will allow operating unit and system leaders to refer to the detail on plans as needed.

Each SMFP should include such typical information as strategic market projections; capacity and space projections; operational, facility and infrastructure assessments; relevant conceptual option drawings; opinions of probable cost; and schedule and phasing plans, among other information.

Scoring and evaluation

To add objectivity to the process of evaluating tracks of projects to fund, not to fund, or defer to a later time, a forced scoring evaluation tool should be developed.

There are many criteria to consider when evaluating SMFP projects. Each criterion should be placed into one of several groups and scored. The score for each rolls up into a weighted criteria group where scores are tallied and then rolled to the total.

By creating these criteria groups, health care organizations can look more deeply into why a project track is important. For example, is it to meet a strategic need, mitigate risk, address an operational issue or some combination?

Suggested criteria, groupings and group weightings include:

Financial (20 percent). This includes capital cost and potential return on investment.

Strategic (25 percent). This includes operating unit growth initiatives, systemwide strategic initiatives, speed-to-market considerations, imminent competitive threats, the need for capacity and potential opportunity costs that could lead to gains for the hospital's competitors.

Risk migration and critical need (30 percent). These include the ability to upgrade standards of care and improve infrastructure.

Operational and physical improvements (25 percent). These include improved access, an image enhancement, flexibility and adaptability, measures to achieve best practices and support new models of care, and improvements to process, flow and throughput.

This list is not exhaustive, but is representative of the main focal points of SMFP projects. Before each project track is scored, there should be agreement from each operating unit leader on the criteria, the criteria groupings and the weighting.

Each criterion is then force-scored on a scale of 0 to 3 related to the main focal points for each SMFP track. One should ask: What are the main reasons and focal points for the projects within this track? Are they to meet a growth initiative need, improve operational flow or improve infrastructure?

Scores would be 0 for "Neutral/Not a Focused Reason," 1 for "Limited Focus," 2 for "Secondary Focus" and 3 for "Primary Focus."

Scores within each criteria grouping are totaled, then multiplied by the grouping weight for a grouping score. The grouping scores are then totaled and rounded to the nearest one-tenth for a final score. All scores should be presented. The scores for each project track then can be compared against one another.

However, it is important that the absolute score not be the only determinant of funding or deferral, but one indicator of overall rationale and need for a project. By creating these criteria groups and presenting the full data, one could look more deeply into why a project track is important.

Individual operating unit scoring matrices should be reviewed with the respective operating unit leader until the leader agrees with the scoring. Other operating unit scoring matrices should be shared only during an operating council with other leaders and system leaders and not until all matrices have been finalized and agreed upon. This way, objectivity will be easier to maintain, and debate and discussion can occur with all information on the table and leaders present.

The last piece

The last piece of the puzzle is to develop a cash-flow map that shows spending requests across a multiyear quarterly timeline. When looking at all SMFPs across a system, the number of project tracks could be in the dozens.

By utilizing the information collected in the portfolio matrix, a graphic stacked-bar chart can be created that shows each quarter as the X axis and potential cash flow as the Y axis. Each quarterly stacked bar represents the total potential quarterly SMFP spend-ask for the system.

The items in the stacked bars can represent color-coded operating unit project tracks (e.g., MH-1 in the previous example could be a light blue item in a quarterly stacked bar). It is important that the system understand its target or available quarterly potential spend related to all of the SMFP projects.

If the total spend-ask is below the quarterly capacity, all is good. In quarters where the spend-ask is more than the total spending capacity, then decisions to fund, defer or change project timing need to be made in order to "smooth" spending so as not to put the system's fiscal health in jeopardy, assuming no shift in spending capacity can be made.

This will cause the leadership operating council of the health system to launch into healthy debate over the merits of one plan and development track versus another.

Informed decisions

Many decisions need to be made to ensure that system resources are appropriately allocated and that the strategic and facilities needs of the operating units are met to ensure viability.

In an effort to help with these decisions, a completed strategic and master facility plan portfolio, scoring matrix and capital request cash map are tools that leaders can utilize to drive adjustments to plans and to make informed decisions. HFM

Curtis Skolnick is managing director and Stevie McFadden is a consultant at CBRE Healthcare in Richmond, Va. They can be reached at Curtis.skolnick@cbre.com and Stevie.mcfadden@cbre.com, respectively.