Creating and Maintaining Infrastructure in the Capitation Era

By Sylvie Mackenzie, Pmp-Oracle on Feb 24, 2015

written by Garrett Harley, Industry Strategy, Engineering & Construction

I was at the Lean Construction Institute annual conference back in October, and healthcare was well-represented. At one of the keynote sessions, an executive from a major hospital provider spoke about the ins and outs of how his hospital manages the complete asset portfolio from design all the way to operations and maintenance. I had a big question for him, and the Q&A session gave me the floor to ask it:

“How is capitation influencing your capital spending decisions?”

The reply? Without a moment of hesitation, the speaker replied definitively and unapologetically:

It’s not!”

What? Hold on…did he just say that in making capital spending decisions, capitation is not part of the equation? As in, this huge shift in how healthcare providers make money and assume risk is not going to change capital spending planning or execution (that’s really what the capitation payment model boils down to)? I just couldn’t believe what I had heard. All I could think about was the traditional definition of the hospital (where I go to get well) and how that definition could drastically change under capitation (it’s only where I go when I am acutely sick).

But the more I thought about it, the more I realized I asked the wrong question. What we need to be talking about is this: Is capitation going to change how providers use the current built environment to service patient care? And does this mean that the current built environment needs to change?

Here’s why my first question was the wrong one and how I think healthcare providers should be answering this looming capitation-era question.

Capitation: Making budgets more predictable

I had asked the healthcare executive about capitation and budget. Thinking about the ins and outs of capitation, when it’s framed as a question about budget, the healthcare executive’s answer was actually quite accurate. Capitated payment systems are based on a payment per person (instead of payment per service provided), and there are several different models, but typically capitation-based payments are expressed in a per member, per month (PMPM) format. Because the provider is no longer relying on a payment per service provided model, with capitation, budgets generally become more predictable (and timely). The payment is fixed—providers get the payments regardless of how much or how little services are rendered.

The speaker also likely answered this way because the capitation payment model only influences how and when the money is coming in—not what they can or should spend it on. In other words, in the healthcare executive’s mind, capitation just gives him the budgetary boundaries, but it doesn’t make him think about if he’s spending that money on the right things.

So, I asked the wrong question. The issue is not about how capitation in and of itself is influencing spending decisions. Rather, it’s about how capitation will change the role of the provider in giving care to patients, and therefore how it will change what the infrastructure looks like—and how healthcare providers plan for that new infrastructure. So, the more important question for healthcare providers today is this:

Is capitation going to change how providers use the current built environment to service patient care? And does this mean that the current built environment needs to change?

Even before capitation started gaining steam, the built environment was changing—significantly. In the past, hospital design oftentimes followed hospitality industry trends. But since the economic downturn, construction is focused on efficiency and cost-containment, especially given the reality that the demand for healthcare services is only increasing.

Improving patient care should always be the focus of the built model. So if the promise of managed care is seamless integration and access to medical professionals, then this built environment must support it.

The question I originally asked was designed to make the speaker think of how and where those investments in their physical assets are now going. But, the reality is that if healthcare providers are operating under a capitation model (assuming that capitation is the new normal), then the most profitable hospital would be an empty one. The hospital gets paid based on the patients in the system—not the services it provides.

Now, let’s apply this logic to the infrastructure discussion. If an empty hospital is a profitable one, then the design, build, and operations of a healthcare facility should have less to do with its serviced population, and more to do with its throughput efficiency. If the emergency room is the most expensive way to have you come in, then repurposing the existing infrastructure for wellness will reduce costs over time. It is also an efficiency gain—you are reducing the number of people coming through your most expensive resource.

This is not to say that patient care is not at the center—it’s just that the definition of “care” has changed. Care now equates to “wellness”—which is closely correlated with throughput efficiency. Wellness is all about providing healthcare services that do everything they can to get the patient well and keep them well (and therefore out of the hospital). To do this successfully, the throughput of the patient in the facility must be a seamless integration of medical professionals and services—backed by an infrastructure that mirrors this same level of seamlessness. And this certainly influences how providers must design, build and operate their healthcare infrastructures. Walkable campuses of integrated services, doctors, labs and pharmacies will become the new normal of care delivery— increasing the specialization and integrating it at the same time.

Integrated infrastructure: For the sake of patients and budgets

Creating an integrated infrastructure not only makes sense for patients’ wellness—it also makes sense for budgets. The reality is that healthcare operating margins are very low—two to three percent is considered an industry average—but many hospitals do lose money. And when margins are so thin, providers are better off focusing on strategies that reduce costs, as those directly go to the bottom line. Perhaps surprisingly, in the long-term, the greater savings opportunity is in improving day-to-day efficiencies.

For this reason, the new integrated healthcare infrastructure is typically created using existing facilities, leveraging two major tactics:

• Renovate for sustainability: Even old buildings can be modernized with the right energy saving updates; investing in the right IT can actually increase infrastructure efficiency. For example, effective data management and smart systems make hospitals more efficient by preventing opportunities for errors. Improving energy efficiency can also result in large-scale savings over time, while boosting the hospital’s efforts toward sustainability.

• Redesign the flow: An increasing trend is for design and construction teams to talk with physicians and nurses about ways that facilities can help them to perform better, often by spending less time walking from place to place and more time serving patients. The goal is to reduce the number of trips that nurses and orderlies must make between patients and areas where medicines and linens are kept.

And with a new infrastructure model comes a whole new reality for those managing the assets: the project management office (PMO). If the goal is integrated care, then the portfolio of assets can and will become even more complex. It’s not just the “big box” hospital that matters now; it’s all of the additional surrounding assets that service the idea of wellness. Therefore, because those assets need to be tightly related to one another for the new wellness mantra to work, it will be even more critical for the PMO to understand an asset’s complete lifecycle within the context of that increasing portfolio. In addition to the assets, the types of projects to manage will become just as diverse. There will be small jobs and big jobs, simple jobs and complex jobs. And with an integrated model, they all should be ultimately viewed together—in other words, planning will become more important than ever in healthcare infrastructure.

As the complexity of integrated care grows with the “wellness” model, so does the importance of maintaining the portfolio of assets that service wellness. Making capital asset spending decisions that support the wellness model and focus on increasing patient throughput are important to healthcare providers’ success as well as patient outcomes. Integrated project management tools can manage existing asset portfolios to help pursue the right projects and work within budgets to deliver the right infrastructure in this new era of patient care delivery.

Category: Capital Projects and Program Management