By definition, Fair market value (FMV) is an estimate of the market value of a property, based on what a willing, unpressured buyer would likely pay to a willing, unpressured seller in the market. Determining FMV will most often involve consideration of age, condition, original cost, market evidence of buy/sell transactions for same/similar property and in some cases, the status of technology (i.e. medical and computer equipment). There are several variations to a simple buy/sell transaction caused by respective circumstances that will impact the value assigned. Several examples of common instances would be:
- FMV/Continued Use – (property is to remain in its current operating environment)
- FMV/Orderly Liquidation – (seller has the opportunity to seek out buyers)
- FMV/Forced Liquation – (i.e. auction)
Why Do I Need A Valuation?
A seller or buyer may elect to engage an expert appraiser to conduct a valuation in order to establish an objective, third-party perspective. If so, two options exist:
- Desktop Valuation – seller provides to the appraiser a listing of property to be valued with item description, manufacturer, model, age, operating condition and approximate original cost. Pictures of any property assumed to have significant value should be included.
- Site-Visit Valuation – appraiser completes a visual inspection of the property to be valued via an inventory
The desktop version offers the seller a lower cost alternative to the site-visit version, as the time and cost of a visit are avoided. The desktop version works well when there are limited items to be valued and/or the property is considered to be of relatively low value (i.e. furniture, low-end business equipment). In comparison, a site-visit valuation may be optimal if the subject property is assumed to be of considerable value or if there is a high probability the valuation will be entered as evidence in litigation.
Come Get To Know Us!
To learn more about Partners healthcare Group and the many services we offer, please visit us online at www.PHGWorks.com, call us at (615) 370-5014, or toll-free at 1-800-270-7582 . You can also visit us on Facebook, Twitter, Google or LinkedIn! We look forward to working with you in the future!
An Asset Inventory and Tagging is an opportunity to correct financial ledger data to a standardized nomenclature, to clear up any ghost assets (for-profit organizations may see a property tax reduction from this), and to better identify equipment needs (where equipment is lacking or requires replacing). Asset tags improve the accuracy of future revisions to data in your asset ledger by allowing verification that the asset tag number observed on the physical asset matches the tag information on the asset record about to be modified.
The Asset Inventory and Tagging process begins with the definition of scope and requirements.
The scope - which items are included and which are not - should match your capital threshold (for more on this, check out this blog). Additionally, if your asset ledger contains items located at sites other than the main facility, you will need to determine which sites are included in the inventory. (If a site does not contain items within the threshold, it would be most sensible to exclude it from the inventory.)
Requirements will address, at the least, the tags to be used, and the amount of information to be captured. Asset tags provide a unique identifier for each asset by way of a barcode number. Before you get started on the inventory, you need to define exactly which kind of tags you will be using, approximately how many will be needed, and how the tags should be affixed to assets. There are many different types of tags available; be sure to select one that can withstand the intensive cleaning requirements of a healthcare environment.
The amount of tags you will need for an inventory will depend on the size of your facility and estimated number of assets to be tagged (this may be lower for a facility consistently using tags already). As mentioned in a previous post, take care to also standardize methodology of tag application. For example, instruct the Inventory and Tagging team that tags should be attached to assets on the upper right corner of the front of the item; this will improve efficiency of data collection on future Inventories.
Set forth the types of information to be recorded for each asset during the inventory.
We recommend collecting the following pieces of information for each asset (as a system):
Asset Tag Number
Equipment Type (this is the standardized name)
Location 1 (Building/site name for Inventories including sites in addition to the main facility)
Location 2 (Department or Room)
Serial Number (where feasible and helpful; examples: medications dispensing, ventilators)
Notes (used as needed for any additional identifying information)
Next plan your resources and schedule.
Both the size of the Inventory team and the time required to complete the process will be driven by a number of factors:
The size of your facility (and whether you have any off-site locations to include)
the estimated number of assets to be inventoried (including those already tagged, because information must still be captured on those)
The amount of time in which you would ideally like the inventory and tagging to be completed (you'll want to keep this to a minimum so that bringing the asset ledger current after reconciliation won't take too much work)
Once the Inventory work is complete, be sure to allow plenty time in your schedule for reconciliation of the data collected then to the asset ledger. To avoid errors, this portion of the work is best completed by a single person.
As you decide when to begin the inventory and tagging, check in with department directors to advise them of the process (so staff will be aware the Inventory Team will be in their areas, including those with patients) and to learn of any potential scheduling conflicts.
Ask what is the best time of day to get into Surgery to perform the inventory (when their cases start wrapping up for the night), and schedule specific times to inventory areas that can be challenging to access, such as IT, Radiology, and Pharmacy.
While the process of Inventory and Tagging is rather involved, its benefits are great. Once the Inventory Team has completed their work, the data gathered is reconciled to the asset ledger, resulting in a much more accurate record of your facility's assets that will be easier to navigate and to maintain. If you've chosen to use asset tags, the tag numbers can also be useful for coordinating relocation activities.
As we continue our blog series on maintaining a healthy asset ledger, we now look at developing a standardized nomenclature for describing assets. This is all about keeping the information in your ledger consistent and maximizing your ability to search, sort, and filter your data.
As explained by example in our first post in the series, the exact same equipment could be acquired by your facility at different times and, without a standardized nomenclature, could be entered into the asset ledger a number of different ways. Again, this could be problematic when trying to locate an asset on the ledger that needs to be retired or when otherwise trying to make use of the data within your ledger. In the case of a retirement, if you have twelve assets described three different ways, that complicates locating the correct asset on the ledger that corresponds with the exact asset being retired. Moreover, if you have a single type of asset described several different ways throughout your ledger, you will need to perform multiple searches or apply several different filters in order to make the most use of your data. However, if your assets are entered into the ledger according to a standardized nomenclature, your data will be consistent and thereby much easier to manipulate for any tasks you need to accomplish.
To take control of your data, start with developing a standardized nomenclature for describing your assets. Create a file – a spreadsheet is recommended for ease of sorting and filtering – in which to make a list of asset descriptions. As you start listing all the different types of assets, you’ll want to keep these points in mind:
Decide on a format and keep consistent as you add new descriptions
You will notice there are several kinds of items within the same basic category. For example, there are chemistry analyzers, microbiology analyzers, and hematology analyzers, to name a few types of assets that fall into the ‘analyzer’ category.
It is our recommendation that you describe each of those by beginning with the category (in this case ‘analyzer’) and continuing with the specific type (so one might be ‘analyzer chemistry’).
You will need to decide whether or not to include punctuation between the main category and the specific type, such as a comma, colon, or dash, and be sure to continue with that format as you address the rest of your descriptions. (For the chemistry analyzer example, you may choose to use no punctuation as shown above, or to enter it as ‘analyzer – chemistry’ or ‘analyzer: chemistry’ or even ‘analyzer, chemistry’ – you can see how your list will be more consistent if you standardize the type of punctuation as well.)
Be thorough when creating your nomenclature to make certain that no type of asset is without a standardized description
You may be able to start your list by referencing your asset ledger, but if you’re not too familiar with all the kinds of medical equipment or whether the variations of descriptions on your ledger are referring to the same or different things, it’s time to bring in the experts.
If you can get them to spare some time, your department managers or directors may be able to shed some light on all the different assets used in their area, and you can work with them to get their information into the format you’ve decided on for the standardized descriptions.
If that isn’t an option or you’re more of a do-it-yourselfer, consult some industry published information. For example, the American Hospital Association’s Estimated Useful Lives of Depreciable Hospital Assets can be a great reference because it contains information on hundreds of types of assets.
Finally, you could outsource the creation of a standardized nomenclature to an experienced company like Partners Healthcare Group that is very familiar with the wide range of asset types commonly found within the healthcare industry.
Restrict revisions to your standardized asset descriptions list
Change is inevitable, so always the better to prepare for it. Where your standardized nomenclature is concerned, you will at some point be faced with the need to revise a description or add a new description for an item previously not included in your list (as technology advances, this is sure to happen).
Designate ownership of the standardized nomenclature. Whether it is a single person or a select few (keep that to an odd number if possible, so disputes can be resolved via vote), ensure that everyone is aware of who has the authority to review and approve or reject requests to update the standardized descriptions. This will help ensure continued uniformity of the standardized list. Additionally, the responsible party/parties can be consulted if there is confusion as to which description should be used for a particular asset if it is immediately unclear.
Establish within your policy and procedures that all assets added to the ledger must follow the standardized nomenclature. When new acquisitions are reported from Receiving, ensure that the information entered into the ledger follows the proper standardized description for each asset. This will establish consistency of data within your ledger going forward. As for the assets already listed in your ledger, it may be possible to correct some descriptions according to the nomenclature; however, the most efficient way to clean up your ledger will be to have a comprehensive Asset Inventory and Reconciliation performed. Check back soon for our next post in this series which will focus on the importance of the Inventory and Tagging process.
Our post titled The Foundation of Successful Healthcare Asset Management outlines the standards required to improve and maintain the accuracy of information comprising your personal property ledger. Just to review, a true accounting of assets owned will:
- Reduce equipment maintenance costs.
- Support future investment decisions for strategic assets.
- Reflect the correct value of assets owned, and minimize property taxes owed (for-profit facilities).
The first step towards a healthy asset listing is to define your capitalization threshold. The capitalization threshold will distinguish assets that should be recorded as capital from those that should be expensed. Asset acquisition costs below this threshold should be expensed as incurred, while those equal to or above should be capitalized and depreciated over the asset’s useful life.
Carefully consider the amount at which you set capital threshold; the lower the threshold, the greater number of assets listed in your ledger. It is much easier to maintain the accuracy of an asset ledger comprised of assets with an original acquisition cost of $5,000+/item than one comprised of assets with an original acquisition cost of $1,000+/item. The point being the threshold must be commensurate with the effort committed to maintaining the accuracy of the ledger. Statistically, for full-service medical centers, personal property items with an original acquisition cost of $5,000 or more often represent 80% of total cost for all personal property items.
Once you have defined the capitalization threshold, each acquisition can be measured against the threshold for a perfectly clear determination as to whether the asset should be capitalized or expensed. One word of caution would be to also define the level at which an acquisition should be measured. Here’s an example:
Your facility is expanding its Surgery department, and as part of this construction project, four new anesthesia machines are purchased. The invoice comes in at a total of $240,000, which exceeds the capitalization threshold. Although flags are raised and alarms are sounding to ‘Capitalize!’ slow down. Before entering this $240,000 into the ledger with a description something like ‘OR Expansion Anesthesia x 4,” imagine the head scratching and additional work you’ll encounter a few years down the line when you find out that one of the machines has been handed down to C-Section and the other has been traded in for credit toward the purchase of a couple new anesthesia units while the other two original machines are intended to remain in Surgery for their remaining useful life. Instead, at this magic moment of original acquisition, enter each anesthesia machine as a separate line on the ledger at $60,000 and record the unique property tag number for each. Now, you will be able to properly account for each one of the assets in the future, independent of the status of the other three.
Also note that by identifying the level at which to apply the threshold, you can help prevent assets being unnecessarily capitalized. For this example, an invoice comes in on the same project at a total of $5,500 and your threshold is $5,000. Based only on the invoice total, the acquisition could be entered in error at $5,500 with a description similar to “OR Expansion Fluid Warmers”; however, by measuring the cost of each asset, each fluid warmer, against the threshold, we determine four warmers were purchased and the acquisition cost for each is actually $1,375, which is below the threshold. The fluid warmers should not be capitalized.
By entering newly acquired assets into your ledger as a single line per individual asset (with acquisition cost at or above the capital threshold – as in our example), you remove some of the complexity that can complicate updating the ledger due to changes in the future, as well as prevent assets below the threshold from being capitalized in error.
Thank you for reading. Be sure to visit phgworks.com again soon as we continue our detailed guide to maintaining an accurate asset ledger with a look at developing a standardized nomenclature for describing your assets.
As described in our previous blog post, Is Your Medical Facility Haunted by Ghost Assets?, a healthcare asset listing containing items that do not actually exist at your facility is problematic. So once you have had a healthcare asset inventory and reconciliation to remove those pesky ghost assets, you’ll want to keep your asset listing clean. This can be challenging because maintaining the integrity of your asset listing is a collaborative effort, but these tips can help.
First, ensure that you set up clearly defined policy and procedures for tangible personal property and that the appropriate parties at your healthcare facility are aware of and fully understand them. This is the foundation of successful healthcare asset management.
Your healthcare asset policy and procedures should be written and made available either in print and/or through an easily accessible, shared location such as your intranet. Begin this document with an explanation of its objectives along with some examples of why it is important to properly track assets, such as insurance purposes or government regulations.
Next, set forth your definitions. For capital assets, explain that the items must have had an acquisition cost, regardless of their current value, equal to or above your capitalization threshold (include the actual dollar amount) for this classification. Include any other terms you will reference throughout the document.
Outline responsibilities. If you expect that department directors or managers will perform the work of reporting asset transfers and disposals and that Receiving will report asset acquisitions, ensure that they understand this responsibility and that they know who to report this information to and how to do so. By requiring that new items are tagged upon receipt by a single entity, it will be easier to ensure only assets within capital threshold will be tagged and that the tags will be placed in the appropriate position on each item.
Associating each asset with unique tag numbers can make asset tracking easier. These tags will serve only to maintain an accurate asset log and will be a different and separate type of tag than the kind used by Biomedical Engineering, which are used for equipment maintenance purposes. Note that while it is possible to simply record serial numbers instead of tagging, that method can make routine audits more difficult, as serial numbers are often located on hard to see surfaces of equipment. If you plan to record both serial numbers and tag numbers, be sure to establish which type of information will be the primary component by which each asset will be identified. If tags will be used, describe tagging in full; include an explanation of:
What to tag and what not to tag, some examples are:
IT items like computers may have a different tag, and many items will also have a BioMed tag. Do not cover these tags; they are used for other types of tracking. Some of these items will fall beneath the capital threshold and do not require an asset tag, while some will need an asset tag – carefully review the acquisition cost of the item against the capital threshold to determine whether to apply an asset tag.
A tag number should be recorded for some items, like endoscopes, but cannot have a tag physically applied because of the cleaning process or other reason (explain what to do with the tag itself, perhaps require it be turned in to Accounting so that its unique number is not accidently reused, etc)
Include a list of examples of items that should receive an asset tag
Provide a point of contact to resolve any uncertainty over whether something should be tagged
When to tag: all items should be tagged immediately upon receipt by (insert responsible party here)
Where to tag so that the numbers can easily be seen when the item is in use
Example: do not tag a bed on the back of the headboard as it will be completely out of view when a patient is in it; instead, place the tag at the footboard end.
Set a rule of thumb as to the general location a tag should be placed on any item. For example, instruct that a tag should be placed at the top right side of any piece of equipment whenever possible. (Exceptions to this rule may be caused by insufficient surface area to apply the tag there, or there could already be a logo or other information there.) Consistently tagging items in the same spot will make it easier to find the tag number information in the future.
How to record asset tags for each situation (acquisition, transfer, disposal)
Create a standardized form that includes all required information to be completed for any of these asset activities and information on where to send the completed forms.
A standardized nomenclature for consistent equipment description is fundamental to maintaining an accurate asset listing. Include an exhaustive list of asset types that should be used verbatim to describe items on the form.
(Here’s an example of why standardized descriptions are important. Imagine Intensive Care has a monitor in each patient room by ABC Company, and the model is Cardio Scope 700. Meanwhile, on patient floors there are monitors by XYZ Company called Mega Vitals 5. It is very likely that these two monitors will be described differently even though they are the same type of equipment. Examples might be: ICU Monitor and Vitals Monitor, ABC Monitor and XYZ Monitor, or Cardio Scope Monitor and Mega Vitals Monitor. In fact, it is even possible, especially if additional monitors are purchased after some time, that two of the same exact model of monitors could be described differently. Such variances will make it difficult to sort your data to view every monitor at your facility. It is better, therefore, to standardize on a description such as Monitor, Patient or Monitor: Physiologic because the manufacturer and model information will still be recorded in their respective fields and can serve as additional filters, if needed, without limiting the initial sort.)
- This is a good place to outline transfer and disposal policies
Finally, you may also want to include information on your physical inventory procedures and policy and even a record page to list the month and year each time an asset inventory and reconciliation is completed. Inventories should be performed at regular intervals to ensure tagging procedures are being followed appropriately, and the reconciliations will clean up any ghost assets that may have formed on your asset listing.
A well-organized and detailed document containing your tangible personal property policies and procedures is the first step to successful healthcare asset management. Other asset management tools, such as the standardized form for tracking asset activity mentioned above, will also make keeping up with assets much easier for everyone involved. Stay tuned to our blog for a post with more on that coming soon.