Spending money during tough times may seem counterintuitive, but investments today can boost budgets when new revenue kicks in.

By Greg Thompson

Put aside all the complicated accounting formulas, and a sound budget comes down to one basic principle: Money flowing in should be greater than the money flowing out. That is not the whole story, however, because often you must spend money to make money, and it may take patience to see the fruits of your investment.

At Ridgecrest Regional Hospital, Ridgecrest, Calif, two major undertakings created an undeniable increase in the money going out. The first came in the form of a building renovation, an endeavor still in progress and funded with resources set aside before the economic downturn. The next investment came when hospital officials decided to bring their sleep study program in house, after contracting out for the previous 9 years. With that decision came a need for equipment and sleep technicians, which were all brought on board in February of this year.

Why bring sleep in house? According to Roger Berg, RRT-NPS, manager of the respiratory, cardiology, and telemedicine departments at Ridgecrest Regional Hospital, the move made sense from a budgetary standpoint and a patient care perspective. After starting sleep studies back in 2000, and contracting with a company that provided the equipment, physician interpretations, and sleep technicians, it was time for a change.

Ridgecrest staff members did all the scheduling and provided the room, but it was not enough. After pushing for 9 years to bring the program under the full auspices of the hospital, Berg got a bit closer to his goal 3 years ago. “We didn’t know how well the sleep venture would go,” confesses Berg. “We had a CFO at the time who thought sleep studies were a fad that would disappear in 6 to 12 months, and he did not want to put out $60K for equipment that would go away. Our CEO at the time was taking that advice.”

When the CFO retired in 2006, the sleep initiative began again in response to increasingly poor service from the contract company, service that threatened the reputation of the hospital and the facility’s future revenue. “When you are dealing with a contract company, you have employees that are not yours, and in this case they were not well trained in our opinion,” laments Berg. “I would make calls to their company, and they solved problems for a week or two, but they were soon right back to the same problems.”

Waiting as long as 4 to 6 weeks for sleep study results was bad enough, but when sleep technicians started bringing in their boyfriends and girlfriends—and leaving patients unattended—things reached a boiling point. The new CFO was a little hesitant because equipment depreciates, and full-time employees with benefits are never cheap—but eventually he decided to invest money to make money, and Ridgecrest took the plunge.

In a town the size of Ridgecrest, which is 2 hours east of Bakersfield and almost 4 hours northeast of Los Angeles, word travels fast and rebuilding the sleep division’s reputation has not been easy. Fortunately, things have gone well for the sleep program located at the 80-bed hospital. The new sleep efforts have increased speed, boosted referrals, and put much needed dollars into the budget coffers during a time of ongoing construction.

Rocky Mountain Fine

Over at Poudre Valley Hospital (PVH) in Fort Collins, Colo, the respiratory department has so far managed to keep its budget under control, and avoid the freezes and layoffs that other organizations have experienced. Ann Dinsmore, MBA, director of rehabilitation and pulmonary services at PVH, acknowledges that the respiratory department has been asked to “tighten belts,” but she says that is already a way of life that hospital officials stick to in good times and bad.

One way that Dinsmore and Brian Omundson, RRT, supervisor of PVH’s respiratory care department, keep costs down is by ruthlessly adhering to standardized processes, and working closely with the purchasing department. “We see if we can get better deals on bulk purchases,” says Dinsmore, speaking from PVH’s 250-bed facility, which houses 24 staff respiratory therapists. “Medical Center of the Rockies is in our same medical system, and if we have contracts with certain vendors, we look at those products first. Better deals are available if you bundle services, and nowadays you just have to do that. Our purchasing department does a great job.”

Dinsmore uses an independent service organization (ISO) for her biomedical needs and makes it a point to use the ISO’s expertise when making capital purchases. The ISOs help Dinsmore structure contracts for capital equipment such as bronchoscopes and ventilators.

Poudre Valley Hospital is a not-for-profit hospital, and Dinsmore stresses that money people do not drive the delivery of care at PVH but, instead, support it. “I do have to count beans, but at the same time I need to be sure that I am counting the right beans, and that I have the right number of beans to count so the service can be delivered,” muses Dinsmore. “We have forecasts for our patient populations and for diagnoses, and we know what RT services patients have historically received, so we can budget that way based on the utilization that the bean counters have projected. We can agree or disagree, and we can add or subtract as necessary. The budget is a document that we can tweak, and then we are held accountable to it.”

Operating budgets get finalized in the fall at PVH, with capital budgets getting the final nod in the third quarter. Every month the figures are analyzed, and every proposed acquisition is double checked to be sure all purchases are still necessary for operations.

With a respiratory department that bills Medicare for slightly more than half of all patients, this “living document” approach also applies to the underinsured and/or write-offs that are an inevitable part of the economic landscape. According to an article in The Coloradoan newspaper, the Poudre Valley Health System (PVHS) in Fort Collins provided almost $12 million in charity care last year, and $1.86 million as of April 2009. “We are a not-for-profit organization, but we still have to make money because that is how we buy ventilators and keep the business running,” says Dinsmore. “But there is always money set aside for community service.”

Projecting out a full 5 years in advance is another way that Dinsmore keeps a firm handle on the life cycles of various pieces of equipment. PVH also has an emergency stash that it calls a contingency fund. If a ventilator implodes, there is money set aside to replace that necessary piece of equipment. A new desk or chair would not qualify, but necessary medical equipment will always make the grade.

Incorporating rentals into the mix is not much of a factor at PVH, although Omundson is certainly not against the idea. “We do have long-term monthly rental on things such as our bulk O2 tank,” he says. “As far as short term, we on rare occasions rent noninvasive ventilators, and that’s about it.”

Budget Buster or Savior?

At a cost of about $43,000, the sleep initiative at Ridgecrest pales in comparison to the rural hospital’s January 2009 adoption of electronic medical records (EMRs), which came with a price tag of more than a million dollars. “We are bringing on other programs such as pharmacy software that will go live in September 2009, and that was also a big hunk of change,” says Berg. “Next year, we are going to add physician orders and progress notes to the EMR system. By the end of 2010, we will be totally paperless, and that will take millions of dollars. For small hospitals, that is a lot of money, and that is another reason we are not getting all the equipment we would like to get.”

While no new EMR system is without its headaches, Berg points that the new system has made documentation and charting much easier. “If we give a treatment, we click on what treatment we gave and it automatically bills it, and we are saving many hours per week,” enthuses Berg. “In the past, you would have to come back to the department and bill everything. Most of my staff would come back an hour before the end of the shift just to do the billing. With the EMR, when you are finished, you are done, and that saves us money and definitely helps with the budget.”

Editor’s Note
Be sure to listen to RT’s podcast on health information technology and how it could impact your department/facility.

By November 2010, Berg hopes to save more time and budget dollars with electronic prescribing. The ongoing march toward a paperless office will also continue from 2010 to 2011, and eventually the day will come when charts will no longer have to be stored in physical space. For now, Ridgecrest officials are keeping everything—paper and electronics—until all possible glitches are weeded out of the system.

If a patient comes in to Ridgecrest today, and they have not been in for a year, officials will generate an EMR by scanning the old paper record. The idea is that the patient’s EMR will be available nationally and worldwide, a concept increasingly endorsed by the federal government as a way to reduce overall health expenses and keep a close eye on fraud and abuse.

When Berg takes all these factors into account and makes out his capital budget, administrators typically ask him to categorize equipment for three different years. “Especially in today’s economic climate, they want to know: Can it wait a year or two years?” asks Berg. “If I really need something right now, I have to make a case for it, because if you just throw things out such as ‘I need a new ventilator,’ but you don’t have good reasons as to why you need a new ventilator, you are probably not going to get it.”

In the case of one outdated ventilator that is no longer supported by the manufacturer, Berg has to search the country for replacement parts or cannibalize other ventilators. In this particular case, administrators will likely opt to spend the money on a new vent. If a new piece of equipment will allow RTs to do a better job with better patient care, and generate better reports for the physician, administrators at Ridgecrest make a real effort to find the money. On the other hand, if older equipment can still do a good job with regular biomed attention, that vent will likely have to stick around for a while to save those precious capital dollars.

Fortunately for Ridgecrest patients and respiratory therapists, access to top-notch equipment is not a problem. A finance committee at the rural facility is ultimately responsible for presenting a budget to the hospital’s board of directors. The finance committee always asks the fundamental question: Will the new equipment save money and time, and truly benefit patient care? If the answer is yes, the equipment will soon be on its way. “We have a receptive administration here,” says Berg. “We have RT students who come here and invariably say, ‘Wow, the big medical centers don’t have this updated equipment.’ For a small rural community hospital, we are up there and even beyond the big boys in some cases.”


Greg Thompson is a contributing writer for RT. For further information, contact [email protected].