Potentially Avoidable Expenditures: Are You Spending Capital Dollars Wisely?
In today’s health care landscape, making technology investments might seem like a gamble. Capital budgets remain under pressure; access to funds is tight; and making successful technology acquisition decisions can feel as impossible as hitting the casino jackpot. Effectively managing expenditures is a difficult task for most organizations, but technology investments should not feel like a game of Roulette.
Capital Budgets Are Tightening
Our clients have told us that decisions about technology purchases and spending scarce capital resources remain key concerns. In our last annual Sg2 Pulse Survey taken in November 2013, 76% of respondents reported that the economy and credit outlook were impacting their purchasing plans for 2014. For the fifth year in a row, the majority noted that their 2014 capital budgets would be lower than the previous year.
Three Potentially Avoidable Expenditures
Our conversations with clients throughout the year have focused on several key technologies that organizations are reviewing as potentially avoidable expenditures. The three discussed below each require significant capital from the organization and should be carefully considered:
- Surgical Robots: The investment required is more than $1.5 million plus the cost of service contract and consumables. With over 2,000 systems installed worldwide, the ability to move market share is negligible at this point. The clinical evidence base demonstrating superior outcomes over traditional laparoscopic techniques is unclear. Effective scheduling to maximize equipment use is critical. Has your organization developed a strong business case to support the acquisition or addition of a surgical robot? Hear Sg2’s experts discuss this technology in our Tech in Ten video.
- PET/MRI: The investment required is more than $4 million plus the cost of service contract. Combination PET/MRI systems were introduced two years ago, and the clinical evidence base to support superior outcomes of this technology vs PET/CT has not been established. It is important to note that the systems available today are first-generation systems and are likely to undergo significant changes as the technology matures. For a more in-depth look at this technology, watch Sg2’s Tech in Ten video.
- Super Premium CT: The investment required is well over $1 million plus the cost of service contract. Super premium systems range from 64 to 320 detectors; for most organizations, 90% of the CT work performed can be handled by a basic 16- to 32-detector system. The basic systems offer a great value today with a cost of under $400,000. For patients who require a shorter breath hold (eg, trauma patients, geriatric patients), a 32- or 64-detector system would be more appropriate. For organizations looking to perform cardiac studies or advanced techniques such as spectral imaging, a super premium CT would be appropriate, assuming that patient volumes are sufficient to build a strong business case for acquiring the technology. If your organization develops financial models for this technology acquisition, keep in mind that reimbursements for CT studies have been declining over the last several years. For more information on CT technology advances, watch Sg2’s Tech in Ten video.
Alternate Options to Consider
Here are some other avenues to consider when making large capital purchases:
New vs Refurbished Technology Many organizations are looking to stretch their capital dollars further by exploring the acquisition of refurbished systems instead of purchasing new ones. Purchasing factory-refurbished systems from the original equipment manufacturer can generate 30% to 50% savings compared to the purchase of a new system with a warranty from the manufacturer.
Leasing or Renting Another trend we have seen recently is a move away from the traditional capital purchase toward a preference for leasing or renting equipment. Lease or rental options allow an organization to acquire expensive technology using operational dollars instead of capital dollars. Provisions can also be made in the lease or rental agreement to include service costs and upgrade capabilities as new applications or technologies become available. Some organizations are signing long-term contracts with a vendor to provide all the technology and service required for a fixed monthly price. These contracts usually run anywhere from 10 to 15 years, so the choice of a vendor partner must be carefully considered.
Sg2 resources can help you and your organization develop a strategy to manage potentially avoidable expenditures. Contact us at email@example.com for more information about the benefits of partnering with Sg2.
Sg2 Analytics including:
- Sg2 Impact of Change® forecast to help identify growth opportunities and determine whether there are sufficient volumes to support the acquisition of expensive technologies
- Sg2 Technology Evaluation and Prioritization (STEP™) tool, which provides a 10-year look at the technology landscape and helps you answer the what, when, growth potential, cost and margin questions associated with technology adoption
Sg2 Intelligence including:
- Sg2 Tech in Ten series, which offers short videos to discuss key technology issues and considerations for health care executives. View the series here.
- Sg2 Technology Guides, which cover specific technologies and address regulatory status, payment, clinical adoption status, clinical applications and questions for your organization
- Sg2 publications, especially Value-Driven Technology Adoption and The Future Proofing Challenge: Planning Today for Tomorrow’s Technology, which guide you in developing a program to manage potentially avoidable expenditures
Sg2 Expertise brings valuable guidance to your organization. Sg2 experts can act as “virtual members” of your technology committees, providing insight and direction for your organization’s potential purchase plans.