Recent regulatory shifts in the healthcare industry will jeopardise healthcare providers that do not substantially reduce costs. In response to these mounting pressures, many hospitals are turning to technology as a solution, however, this presents challenges given the unique nature of the health IT environment, such as heavily growing demand on infrastructure, interoperability and security. Taking these obstacles into consideration, many hospital CIOs are questioning how to meet increasing demands while balancing budgetary pressures.
To maintain financial viability, hospital CIOs need to fundamentally rethink their IT operating model and delivery capabilities. Below are three key solutions to consider: benchmark IT costs against the industry, outsource non-strategic services and redirect savings to enhancing core activities and new capabilities.
Benchmarking IT costs allows hospitals to optimise performance and identify opportunities for cost reduction
Benchmarking a hospital’s IT costs against the industry is a critical step for hospitals to optimise performance, contain costs and ensure services and prices are comparable to competitors. According to the 25th Annual HIMSS Leadership Survey, two thirds of respondents indicated that although they have increased IT budgets, they still have inadequate IT funding. Therefore, it is necessary to optimise existing processes and resources to achieve a cost effective and successfully operational IT environment.
An important step in the optimisation process is benchmarking. Benchmarking provides insights to enable hospitals to assess their IT operating model and identify areas of strength and improvement. We recommend that hospitals benchmark in three areas: (i) their operating model – how are we structured and organized in IT versus other organizations, (ii) their performance – are we delivering services as well or better than other similar organizations and (iii) their costs – when we directly compare our costs of delivering individual services, are they competitive. The results will help identify areas for improvement, and also identify how others are performing the same work more effectively. In any analysis, hospitals will want to identify clear demarcation between core and non-core services. Core services are the strategic, value-add services that ultimately drive the quality of care, and in some cases revenue, while non-core activities are the peripheral, typically repeatable tasks that do not differentiate an organization’s end services or value. As the effect on patient value differs between core and non-core activities, the approach to optimising these services should differ as well.
Outsourcing non-core activities enables hospitals to focus on developing a competitive advantage through their core business
Following benchmarking, actions or measures will typically focus on performance improvement or cost reduction. Cost reduction measures should focus on optimizing non-core activities as they have little impact on patient value or revenue streams. One approach to reduce non-core activity spend is through outsourcing. Outsourcing can reduce costs, as well as provide access to new talent and better technology, such as by moving to the cloud. Over 80% of healthcare organizations have already transitioned some services to a cloud environment, according to the 2014 HIMSS Analytics Cloud Survey. Consolidating IT systems and releasing IT capital in favor of a cloud-based virtualized environment translates to economies of scale that optimize hardware and provide capacity on demand. Moreover, migrating applications and data from disparate servers and storage onto a consolidated environment reduces the need for additional resources (hardware and software), while delivering performance improvements. While there used to be many restrictions to hospitals moving IT to the cloud, in particular security and data privacy regulations, many of these have been overcome, enabling a more seamless transition. A focus on outsourcing non-core activities allows organizations to focus on developing a competitive advantage through their core business and IT operating model.
Investing in core activities and new capabilities strengthens the value delivered by hospitals
Hospital savings from outsourcing non-core activities can be invested in current core strategic and patient-facing activities, and in developing new IT capabilities. Hospitals that redirect their internal teams to focus on core activities will strengthen their capabilities, improving the focus on their core mission of patient care.
As hospitals’ core activities are becoming increasingly interconnected both internally and externally through IT, it is crucial to address IT usability and interoperability. In 2015, 96% of non-Federal acute care hospitals adopted a Certified EHR, according to the U.S. Department of Health and Human Services (HHS) , yet despite a high adoption rate, hospitals continue to struggle with EHR usability. Interfaces for EHRs can be difficult to navigate and time-consuming for hospital staff. Moreover, the lack of standardization among EHR solutions creates challenges in integrating data among disparate systems. Hospitals that address these issues in their IT operating model can reduce costs by optimizing usability of IT systems, increasing workflow efficiency and creating greater standardisation in reporting.
Hospitals should also consider investing additional savings from outsourcing into developing new capabilities that can further reduce hospitals’ costs, such as data analytics, telehealth and wearables. In hospitals, data analytics helps to reduce costs by identifying and addressing inefficiencies in current operations. For instance, data analytics can be used to optimise patient care procedures and prevent unnecessary emergency department visits and hospital readmissions. Moreover, predictive modeling tools help hospitals avoid future costs by allowing doctors to identify and segment patients likely to develop illnesses and develop custom programs that keep these patients healthy and out of the hospital.
Additionally, wearables are proving to be powerful instruments that enable hospitals to provide remote care and better manage and prevent illness. These devices can be used in place of traditional hospital visits because they increase hospital efficiency by freeing up time and resources for clinical staff to treat additional patients. Wearables also enable patients to proactively manage their health through preventative measures and monitoring of chronic conditions. This allows for early detection, which in turn reduces the likelihood of serious conditions and of complications forming, resulting in improved patient health and a reduction in costs.
Implementation: A Time to Act
As pressures for hospitals to reduce costs continue to increase, the time to act is now. By implementing the solutions above - benchmarking IT costs, outsourcing non-core activities and investing savings in core activities -hospitals can enhance services and the quality of care, while achieving lower costs.
However, hospitals need to be aware of the challenges for each of the solutions. Considerations when benchmarking include data collection, such as how the metrics align to business processes and whether the data is comparable. When outsourcing, common challenges arise around vendor selection, such as selecting vendors that understand the organization and can meet SLAs. According to the 2014 HIMSS Analytics Cloud Survey, more than half of healthcare organizations report that the vendor is experiencing difficulties meeting agreed upon service levels.ii As hospitals look to invest in core and new IT capabilities, they need to ensure their business and IT strategy align to most effectively generate value.
Through careful planning and implementation, hospitals can address these challenges and secure financial viability, while hospitals that continue with their current/legacy IT operating model risk falling behind.
Alison Lerner and Jennifer Zheng are healthcare experts at PA Consulting Group