The Capital Budget Process
Who makes these capital expenditure decisions, and what process is followed? Many individuals are involved in review of capital projects. Some of the key individuals might be part of the Capital Review Committee and are as follows:
Chief Executive Officer (CEO)
Chief Operating Officer (COO)
Chief Financial Officer (CFO)
Chief Medical Officer (CMO)
Department Vice President
Other Vice Presidents
Director of Finance, and possibly
Members of the Board of Directors
Members of the Finance Committee
Major expenditures may also have to go to the CFO, CEO, and Board of Directors of the parent organization for approval if you are part of a multi-hospital system. Ultimately, the Finance Committee makes final approvals based on cost/benefit to the strategic plan.
In the healthcare industry, there are many different sizes of hospitals, ranging from 15 bed rural hospitals to 1,500 bed urban academic medical centers. Each one of the 5,700 or so hospitals in America will use a variation of the above theme. Some may exclude some of the administrative personnel, but if they are doing so, they have probably not created the most efficient or effective process.
The dollar amount thresholds and levels of approval necessary for a purchase varies from institution to institution. In a multi-hospital system, approval of the parent organization will vary with the size of the hospital. Small hospitals may require board approval of purchases over $25,000, while larger hospitals may spend up to $1M without parent board approval.
The decision process among institutions can also vary. Ideally, the process should follow a step-by-step strategic approach. Let’s assume that Healthcare Institution A’s fiscal calendar begins January 1. An example of the key process steps from capital proposal to final approval might be as follows;
This calendar is very typical among most hospitals, whether they are small, medium or large, if they are performing a valid and rational capital budgeting process. Added complexity is common among academic medical centers, which have layers of faculty physicians who have their own list of capital equipment that they would like to see acquired. Small hospitals may be able to eliminate some of the steps if they limit the decision makers to their handful of administrative officers.
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