What is Capital Analysis
Being successful in today's cost constrained healthcare market requires a disciplined approach to financial planning. The rising costs of technology and pharmaceuticals, coupled with lower reimbersement rates and changing demographics, as well as the shortage of skilled workers demands Financial Management to take a careful look at any capital proposal affecting the institutions' revenue stream.
Capital analysis provides users with a structured way to look at investment vs. return for a specific project. The analytical results are intended to support initial "go/no go" decisions of proposed investments.
Who Typically Uses Capital Analysis Results
Capital analysis should, and can be used by anyone within your institution who is part of the capital decision process. Department heads and administrators can use this tool to analyze any capital needs, and to support their cost/benefit story as part of their project proposal submission. Examples would be Radiology Administrators purchasing new imaging equipment, Entrepreneurs or Administrators of a new Surgery Center, and Physicians buying their own imaging equipment. In addition, a Financial Analyst who needs a first cut, high level look at a project and doesn’t have a developed model may use this tool to help department heads and administrators in the analysis, as well as to compare the cost/benefit of submitted capital requests from various departments. CFO’s and CEO’s may also use this tool to ensure that proposed projects are meeting their institution’s strategic financial plan.
The Role of Capital Analysis as Part of the Capital Decision
Because capital analysis is the first step in the process of developing a capital proposal, how you perform the analysis, and interpret and present the results is critical to the outcome of acceptance or non-acceptance. Your analysis must take into consideration all of the key criteria your institution feels are important. Not suprisingly, assumptions regarding procedural volumes, payer mix, reimbursement rates, and operating expense implications should be part of your model and should, as closely as possible, match your institution’s outlook.
An economic model, such as the Capital Analysis Tool powered by Kaufman Hall, is only as good as the data you input. Therefore we will spend some time in this tutorial helping you make educated assumptions and guiding you on where to go for information within your institution.
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