Four Essential Elements for Driving Optimal Healthcare Capital Planning

Making decisions on where to invest limited capital resources is never easy, and it is even more challenging in today’s tight-margin, high-cost healthcare environment. 

Recent Strata data show that median health system operating margins remained narrow throughout 2024, fluctuating between just 1.5% and 2.3%. At the same time, median total expense rose 6.4% year-over-year from 2023 to 2024 for hospitals nationwide.  Amid these ongoing financial pressures — combined with economic unknowns around the impacts of shifting government policies and increasing competition from non-traditional healthcare companies — having well-defined capital planning processes is increasingly essential. 

Effective capital allocation across facilities, medical equipment, physician strategies, and IT-related categories can help ensure stability, fuel organizational growth, and enhance patient access. Since capital demands almost always exceed available funds, however, healthcare organizations need clear and consistent processes for requesting, reviewing, selecting, and tracking capital projects. 

Healthcare finance leaders must refine their capital planning processes to account for the current environment and balance priorities to maximize capital investments. Understanding the level of investment needed, capital constraints, and where to prioritize investments is a complex and difficult process that requires collaboration among financial, strategy, operational, and clinical leaders. 

This article discusses four core components for optimizing the capital planning process. 

1.) Require common elements in every capital request:

Having consistent submission requirements helps to ensure that requests are reviewed objectively. It enhances the evaluation process by ensuring that submissions are detailed and consistently presented. Examples of common elements all requests should include are:  

• Project owner and management sponsor 

• Project type 

• Strategic goals and objectives supported 

• Underlying assumptions 

• Financial impact and ROI calculations 

• Capital needs in current and future years 

• Key milestones and project timelines 

In addition to having consistent submission guidelines, all requests should be consolidated in a central repository. Having a single source of information for making portfolio decisions eliminates the need for reviewers to track down disparate spreadsheets or other supporting documentation to compare and track projects.  

2.) Define consistent workflow for reviewing capital submissions.

Capital requests should follow a defined, automated workflow to ensure all documentation is complete and ready for comprehensive review, and that all potential requirements and impacts have been assessed. Conditional rules should be put in place to direct requests to the proper individuals or groups for review.  

Having a system that allows for automated alerts and notifications helps requests move efficiently through relevant stakeholders as their review and approval are needed throughout the process. For example, larger projects often require review by multiple departments. A consistent workflow ensures that each submission includes all critical pieces of information before it goes to review.  

3.) Evaluate all capital requests against uniform criteria.

The capital committee has the important task of assessing capital requests and allocating dollars to projects that best align with an organization’s needs and strategic priorities. Having systems in place that support this process — including clearly defined and consistent criteria for evaluating all requests — facilitates objective review and better capital allocation decisions.  

Organizations should have an applications framework designed to store and report on capital submissions. This can significantly improve access and visibility into the full portfolio of capital requests. Having a central repository of capital projects also allows capital committees to more effectively review and compare capital requests across all areas of the organization based on strategic fit, need, and priority.  

4.) Leverage the same method for tracking and reporting progress.

Healthcare leaders need timely access to reports that highlight the actual project spending to-date compared to approved capital. This allows leaders to monitor progress and assess whether committed funds are tracking as expected. To review actual spending against approved spending for each major capital project, monitoring should be supported by transaction-level financial reporting and, where appropriate, should include commentary to highlight milestone achievements on major projects by named project sponsors. 

Build transparency, collaboration with defined capital planning processes 

Strata’s annual survey of healthcare finance professionals found that 58% of respondents expect operating margins to either remain flat or decrease from 2024 to 2025. Even so, healthcare leaders are looking to pursue growth opportunities throughout the year. Fifty-six percent of respondents cited managing strategic and performance improvement initiatives as their No. 1 priority for 2025.

Strategic capital allocation can provide a competitive edge as leaders pursue these growth opportunities, while ill-informed decisions may lead to missed opportunities. Healthcare leaders should assess their organizations’ capital needs and spending from multiple angles to identify the projects that will deliver the highest return on investment (ROI). Having clearly defined capital planning processes — that align with the four components listed above — ensures that the right stakeholders are engaged in review and decision making. It increases collaboration among reviewing departments, improves the accuracy of cost and scheduling estimates, and increases transparency around the full portfolio of approved capital. 

As hospitals and health systems across the country continue to grapple with tight operating margins, rising costs, mounting competition, and a slew of other challenges, healthcare leaders must take a highly strategic approach to capital planning. The goal is to get maximum value from every investment. 

StrataJazz^® Capital Planning equips healthcare finance leaders with a structured and disciplined approach to healthcare capital planning. By integrating data from various internal systems, the tool boosts efficiency and transparency among clinical, functional, and financial teams. It empowers leaders to determine appropriate investment levels, objectively evaluate and prioritize projects, and track progress on approved initiatives. With this tool, hospital and health system leaders can make sound healthcare capital planning decisions to help ensure their organizations thrive for years to come. 

To learn more about StrataJazz Capital Planning and to see its new simplified pro forma, visit our website or schedule a demo.