Capital Planning for Imaging

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Capital Planning for Imaging

• Mark D. Domalewski
• Corporate Director, Imaging
• Fairview Health Services
• Minneapolis, MN

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Fairview Health Services

• Facilities
• 7 hospitals
• 31 primary care clinics
• 50 specialty clinics
• 4 urgent care centers
• 25 Institute for Athletic Medicine locations
• 5 hand centers
• 7 orthotics and prosthetics clinics
• 10 career counseling centers
• 6 adult day care programs
• 19 senior housing facilities
• 6 long-term care facilities
• 25 retail pharmacies
• 6 home medical equipment locations
• 4 home care and hospice agencies

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Fairview Health Services

• Employees
• 19,052
• Outpatient Visits
• 2,613,000
• Inpatient Admissions
• 80,523
• Employed Physicians
• 256
• Affiliated Physicians
• 4000

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Definition of Capital

• Capital Commitment that meets both criteria
• Unit Cost at Least 1,500
• AND
• Useful Life of at Least One Year
• Capital Commitments
• Purchases of Equipment, Buildings, or Software
• Financing Leases
• Rental Agreements
• Supply or Maintenance Agreements
• Per Use Agreement
• Leased or Rented Space in a Building
• Construction/Leasehold Improvements
• Equipment or Construction Paid by Outside Funding

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Long-Range Financial Planning

• Projecting Fairviews consolidated Financial
  Position into the future (generally for 5 years)
  to determine if Fairview has the capacity and
  resources to support its strategies.

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Revenue by Business Line 2005 Update
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Summary of Key Financial Ratios Operating Margin
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Uses of Cash
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Key Financial Ratios with Strategic Initiatives
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Prioritization Process

• Determine Capital Capacity
• Identify Strategic Capital Projects
• Complete Proforma/IRR/NPV on each material
  strategic project
• Value and Compare to Strategic Initiatives
• Consolidate Project Proforma with Base 5 Year
  plan to determine impact to Financial Statements
  and Guidelines

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Prioritized Capital (in millions)

• 2005 2006
• Acute Care 95 37
• Information Systems 36 37
• Growth Strategy/other 59 23
• Routine/Replacement 79 80
• Total 269 177
• Requests 700 700

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Fairviews Required Return on Invested Assets
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2005 Imaging Exam Volumes

• X-ray 236,333
• Computed Tomography (CT) 91,571
• Magnetic Resonance Imaging (MRI) 26,838
• Nuclear Medicine 19,407
• Ultrasound 49,499
• Mammography 30,722
• Interventional Radiology 12,027
• TOTAL 466,397

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Imaging Installed Base ( of Units)

• General X-ray 43 (75K)
• Ultrasound 37 (150K)
• Computed Radiography 27 (75K)
• Portable X-ray 25 (30K)
• Mobile C-arm 25 (125K)
• Mammography 20 (85K)
• Fluoroscopy 14 (350K)
• Computed Tomography (CT) 14 (1M)
• Nuclear Medicine 13 (400K)
• Magnetic Resonance Imaging (MRI) 9 (1.5M)
• Bone Density 9 (30K)
• Interventional Radiology 8 (1.5M)

244 Units, 66.25M
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Fairview Health Services

• Current strategic initiatives Imaging specific
• PACS
• Optimizing financial and operational performance
• Imaging specific process improvement
• Long term capital planning
• The recruitment/retention spectrum
• Retail imaging strategy (new sites)

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Imaging TrendsImaging Procedure Growth
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Imaging Modality Growth 2002-2007
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Questions We Ask Ourselves

• Are you driving productivity and workflow
  improvements?
• How will you deal with the data explosion?
• How are you handling staffing issues?
• How will you redesign radiology for the digital
  age?
• Are you fully optimizing your technology
  investment?

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Creativity Before Capital
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Fixed Costs, Fixed Costs, Fixed Costs

• Cost of the aircraft
• Cost of the fuel
• Cost of the pilots
• Cost of the flight attendants
• Fill every seat before you fly the next one

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Fixed Costs, Fixed Costs, Fixed Costs

• Cost of the scanner
• Cost of the service contract
• Cost of the technologists
• Cost of the schedulers/receptionists
• Fill every slot before you buy the next one

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Uses of Cash
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Contract with Premier

• This document is intended to serve as a tool to
  assist Fairview in objectively identifying and
  prioritizing its system-wide imaging technology
  needs over the next three years. Recommendations
  are based primarily on national benchmarks, but
  refined using input solicited from clinical and
  administrative staff during the week of Jan 30 -
  Feb 3, 2006, to reflect site-specific
  considerations, local market conditions, and
  Fairview strategic objectives.

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Contract with Premier

• Technological condition - a measure of an asset's
  proximity to current state-of-the-art and to its
  expected end-of-life. Range of "T" scores
  extends from 2 (brand new state-of-the-art) to 9
  (past life expectancy and technologically
  obsolete)
• Utilization - a measure of an asset's frequency
  of use (based on Premier-wide benchmarks) Range
  of "U" scores extends from -2 (rarely or never
  used) to 2 (excessive use)
• Serviceability - a measure of an asset's
  maintenance burden. Range of "S" scores extends
  from 0 (low to no maintenance/under warranty) to
  2 (high maintenance/no support)
• Criticality - an indication of how important an
  asset is to its using facility. " suggests
  loss of asset would result in severe clinical or
  financial impact "-" suggests loss would have
  minimal impact

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Contract with Premier

• Total Score sum of "T", "U", and "S" scores,
  color coded to reflect urgency of need
• GREEN shaded scores of 0-4 signify little or no
  need for action within three years
• YELLOW shaded scores of 5-7 signify a possible
  need for action within three years
• RED shaded scores of 8-13 signify a probable need
  for action within three years

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System Strategy
Imaging Strategy
Capital Capacity
Imaging Capital
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Summary

• Imaging is a capital hog, so a thoughtful
  approach to equipment acquisition is a moral
  imperative
• Because imaging equipment engenders emotional
  issues, contracting with a disinterested
  (Premier) third party can be helpful
• Absent a compelling story, stick to the plan!