Redefining the business value of healthcare infrastructure investment: Introducing plant operating cost correlation coefficients and infrastructure renewal metrics to demonstrate an ROI in reducing deferred maintenance

Abstract

Healthcare organisations face continuous pressure to effectively manage expenses and improve profit margins while meeting the growing demands in the communities they serve. In parallel, the infrastructure is getting older, with deferred maintenance statistics showing that a significant number of US hospitals and the associated mechanical, electrical and plumbing assets required to safely operate those facilities have exceeded industry expected useful life and should be considered for replacement. The data further suggest that without intervention, this ageing trend will continue well into the next decade. Healthcare organisations must also consider hardening facilities against natural disasters and cyber-security threats, improving energy efficiency, reducing carbon emissions and reimagining the role of the facility itself in the future of healthcare. In some cases, these considerations are discretionary, while in others may be mandatory as part of legislative or regulatory requirements. Nevertheless, these requirements create a perfect storm of conflicting financial priorities that will challenge the entire industry for years to come. In the face of these ongoing challenges, traditional methods of budgeting and forecasting may no longer suffice. This paper will define the concept of asset-driven budgeting and introduce plant operating cost correlation coefficients and infrastructure renewal metrics to demonstrate a positive return on investment (ROI) in reducing deferred maintenance. Why? Looking past traditional US$/sq ft metrics, it is important to recognise that the primary cost drivers in any facility are the existing and installed assets themselves, the asset densities required for different service lines and occupancy types, and the age/ design/layout of the facility itself. Without transformational levels of investment to address deferred maintenance and alter the current state of the legacy infrastructure, it can be difficult to achieve anything other than incremental efficiency gains. With infrastructure investment, Risk of Inaction = ROI = Return on Investment.