Creating a Budget for Medical Office Upgrades

Updated on February 26, 2015

By Daniel Casciato

Planning a budget for your medical office upgrades may seem like a daunting task, but it is necessary for the survival of your practice.

“It’s simply good business practice to plan ahead, and you won’t find yourself lamenting a lack of foresight three years down the road,” says Alan Guinn managing director and CEO of The Guinn Consultancy Group, Inc. in Bristol, TN.

He recommends focusing your main categories of planning on these eight areas:

  • Human Resources
  • Physical Plant
  • IT and Connectivity/Telecom/Broadband
  • Marketing
  • Personnel
  • Fixtures, Furniture, and Equipment
  • Financial Functionality and Records Retention
  • Operational Improvements

“Within each of these areas, we assign the changes which we believe need to be addressed for any upgrade to be effective,” he says. “As you set up your budgeting tool, remember that each of these areas can, and probably will, interconnect with other areas, and each of them must be taken into consideration.”

When these eight areas are addressed this way, he said it’s easy to plan any type of upgrade and know within a few percentage points how much capital—and time–will be required to carry out the upgrade.

Consider the revenue generators

Since technology continues to evolve, office upgrades will only make your practice better. Before committing to any upgrade, however, Bruce Feinberg, a CPA, and a partner with Plotnik, Feinberg, Kief & Associates, PC in Lathrup Village, MI says to first consider if these upgrades are going to be able to generate revenue.

“That’s the key driver–if you can buy some equipment that is going to allow you to do new procedures or new testings,” he says. “Also ask if these upgrades are going to create more efficiencies.”

If the upgrade can make you more efficient, instead of an expense, it becomes a revenue generator.

“For instance, if an upgrade in some type of equipment means you’re saving two minutes per patient, maybe you can fit in two more patients daily,” Feinberg says. “So decide first if spending money on an upgrade will generate more revenue for you or reduce your expenses.”

Start planning early

The main pitfall to avoid when planning a budget for upgrades is not waiting until the last minute.

“Don’t wait until you can’t use your old equipment anymore,” says Feinberg. “Technology is changing regularly and most items you purchase has a life cycle. When it has reached near the end of that life cycle, you need to start looking at replacing it.”

So it’s essential to keep track of your equipment or product life cycles. If a piece of equipment you purchase tends to last five years, by the fourth year, you need to budget for its replacement for the next year.

“Know what you are buying and what that life cycle is, and then plan how long it should last,” says Feinberg. “When you know that, you’ll know approximately when you need to upgrade it and not just wait until it breaks.”

Creating a basic budget template

Guinn says that one simple key to creating a working budget is to ask yourself, “Why is this upgrade being contemplated?”

“Against that background question, we suggest that we create a template which will help planning in a way that meets goals, while using basic cost containment guidelines,” says Guinn. “Keep in mind that this doesn’t mean to take days and days putting an Excel spreadsheet together. Spreadsheets are easy to fill in and help clients compute their costs they will incur quickly and efficiently with just simple instructions.”

Guinn says that upgrades become prohibitively expensive when the goal for the upgrade is not written out.

“Writing out specific goals helps to focus efficiencies to be gained, and keeps the upgrade on target,” he says. “Without targeted goals, adding this item or that item is almost assured and the costs tend to exceed the budget quickly. The easiest way to explain this is to focus on the key areas for cost control.”

Work with a CPA

If you’re looking to create a simple plan for upgrades, Feinberg strongly suggests working with a CPA or accounting form with healthcare experience.

“First, they act as your outside controller or CFO because that’s what they are there for,” he says.

Secondly, if they work with similar practices, they know how to properly budget for future upgrades.

“They will know what has worked and what hasn’t based on their other clients,” says Feinberg. “So they already have some insight into the industry.”

Consider leasing equipment

Guinn says that any upgrade you do will probably cost at least 50% more than you originally think, and take at least 50% longer to achieve than you plan.

“Generally speaking, leasing medical equipment tends to be more reasonable in monthly cost, and may increase your cash flow over purchasing the same equipment,” he says.

If the equipment is leased for a fixed term, you can replace the equipment with upgraded equipment at the end of the lease term.

“Leases generally also carry purchase and tax benefits,” Guinn adds.

Upgrading IT services

If upgrading IT services, keep in mind that now is an excellent time to update your system for EMR connectivity.

“Take as much bandwidth as you will need, and add 50% capacity to it,” Guinn says. “Trust me, you’ll need it before all is said and done.”

If you’re moving to tablet or smartphone applications for patient consults, Guinn advises that you are certain that your vendor guarantees interconnectivity between laptops, billing, and smartphones or tablets.

“The best IT services in the world won’t guarantee interconnectivity unless the system is fully vetted and checked out,” he says. “It makes no sense for transparency to exist unless all those parties on a need to know basis can, in fact, see the data which is required for them to do their job.”

No matter what you are doing with your office upgrade, Guinn adds that it includes an ongoing data backup.

“You need it for patient information, billing information, insurance information, and reporting purposes,” he says.

Finally, Guinn says that if your practice wants your patients to be able to contact you via the web, you may need to upgrade your staff’s IT training.

“The fact that your patients can contact you seamlessly and electronically means that you’ll have chances to practice medicine in diverse ways,” he says. “Ditto with your ability to reach out to pharmacies and past records retention. If your office staff isn’t IT savvy, consider sending two or three members to a seminar conducted locally on medical office electronic protocols. Program electronic upgrades into your budget, and then increase the budget by 30%.”

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