Wednesday, 26 April 2017
Take Control of Your Data: Standardize Asset Descriptions

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.

Posted on 04/26/2017 1:12 PM by Karen Dino
Wednesday, 5 April 2017
Setting Capital Threshold

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 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.

Posted on 04/05/2017 2:00 PM by Partners Healthcare Group
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