8 Tips for a Successful Capital Request

Whether you’re a new leader or a veteran, requesting funding from a committee or a board of directors to purchase new equipment can be stressful. As a new leader, this process may have a learning curve requiring trial and error, especially if you haven’t had formal guidance.

As a standing member of the capital requests committee at Bellin Health who has lived and learned these lessons myself, here is what you need to know ahead of seeking financial support for new equipment:

1. Have a budget

Proper budgeting and capital planning is the first step toward a successful capital request. Work with department leaders to understand upcoming needs so you can properly build a budget. Bringing forward a capital request without dollars earmarked in advance may show a lack of foresight and planning for the future of your clinical lab. In these instances, be prepared to answer the following questions: 

• Why is this item needed now? 
• Why wasn’t it budgeted for before? 
• How will this purchase be financed?

Understandably, emergency situations that require moving money from a planned purchase to an unplanned one do arise. These may be situations like an electrical outage that burned equipment circuitry, a cybersecurity failure, and/or a serious outbreak or pandemic.

2. Use data to make an impact

If your capital request is about replacing unreliable or faulty equipment or technology, provide decision-makers with a chart of the frequent service visits required to keep things functional. Using a visual representation of operational downtime can drive home the need to replace an item.

Further, explain how the downtime impacts your margins: Does it result in delayed or lost revenue, or increased operational costs? Equipment downtime leads to delays in patient care, reduced revenue, dissatisfied patients, and frustrated lab staff. In the era of modern medicine, these needs must take priority and be addressed.

3. Consider operational savings or costs of new equipment

Be prepared to speak about any additional operational costs that will accompany a new piece of equipment. Unlike buying furniture, many capital equipment items come with ongoing operational expenses, such as consumables, reagents, controls, cleaning solutions, labels, etc. Members of a capital requests committee want to see that you have accounted for ongoing expenses that persist after the initial equipment purchase. 

Another strategy for reducing operational costs includes locking in a contract to prevent any annual price increases through the initial term. Many vendors apply a CPI-based annual increase on consumables. Locking in the pricing through the initial term can be a great way to demonstrate savings to a committee.

Of course, the ultimate bonus points are awarded if you can show that the new equipment will actually reduce the associated operational expenses, helping increase the return on investment.

4. Address whether new equipment will generate new revenue

Generating new revenue may not be applicable to all capital equipment requests. However, if the equipment you want to buy will likely increase your lab’s revenue, be prepared to discuss this new opportunity:

• Will the new purchase create a new product offering that diversifies your revenue stream? 

Diversifying revenue streams lends itself well to a company's resilience to recessionary pressures.

• Will the new equipment increase your output and generate more revenue by increasing current capacity?

Increasing your output is relevant to service areas that are running at maximum instrument capacity but have staff available to do more. Imaging equipment is a good example of technology that can offer a new service and additionally increase unit of service capacity.

5. Evaluate the labor impact of your purchase

Labor is the largest contributor to operational expenses, often accounting for 50 percent of total health system costs. Labor is a critically important factor when considering any new piece of equipment. With recent inflation driving up labor costs and a dire workforce shortage, be mindful of any equipment that would increase department labor demands. Rather, look for equipment that can reduce labor and staffing needs. 

That said, note that reduced labor doesn’t need to translate to reduced worked hours. Instead, show how hours saved by new equipment can be redeployed to help the team or the system in other ways. 

As the aging workforce transitions from labor participants to health care consumers, health systems must move toward becoming more efficient with fewer staff. Doing more with less is a compelling narrative to garner committee support. Additionally, consider if labor efficiencies due to new equipment would reduce premium hours.

6. Consider benefits of standardizing systems

Standardization provides many benefits to a health system but is often overlooked when seeking new equipment. From foley catheters and IV supplies to laboratory instrumentation and point-of-care test kits, standardization needs to be part of every capital request discussion. 

Standardization has been shown to improve patient outcomes, reduce risks, and slash health system costs. Let the capital request committee know if your equipment plan also aligns with other leaders and departments, as this exemplifies thoughtful leadership.

7. Always benchmark the price

Benchmarking any quote you receive is a sound financial practice that ensures the vendor is giving you a fair deal. With benchmarking, there may be an opportunity to save 5 percent–10 percent on any piece of equipment. If no savings are apparent, you can at least reassure the committee members that you are getting a good price. Most companies have access to a tool through their supply chain or their group purchasing organization (GPO) to have a quote benchmarked.

8. Explore group buying opportunities

Whether you want to buy furniture or an ultrasound machine, look for opportunities to purchase in bulk or in partnership with another department. Purchasing additional quantities gives you the leverage to ask for reduced pricing. For example, if you want to buy a new phlebotomy draw chair for your department, contact other departments to see if they are also in the market. 

Further, if you are part of a larger system or GPO, explore opportunities to bundle your purchase with outside entities. You can almost always be guaranteed better pricing when leveraging scale in purchasing.

Preparation is key

Each equipment purchase request is unique, but the advice above is applicable to almost all situations. As a member of our health system’s capital request committee, I have witnessed firsthand the disasters that unfold when leaders aren’t equipped and ready to answer these questions about purchase requests.

While other questions and considerations may arise (IT security, legal review, clinical impact, etc.,) that were not covered here, preparing answers to the above questions will help you garner the committee’s support and further along your capital request.