What’s in Your IT Wallet? Some Numbers to Help Budget Ahead

As the population ages, providers struggle to keep up and technology must close the gap, says Munzoor Shaikh. The issue? Getting physician leaders to see IT as an asset.

Driven by major government mandates to adopt electronic health records and to use them “meaningfully,” both capital and operating expenditures by hospitals on information technology have soared since 2007.

But with EHRs now running at almost every U.S. hospital, and with no sweeping new regulations looming, can organizations finally relax and slice the IT budget?

That depends on what kind of hospital you have (based on an honest self-assessment) and what kind of hospital yours aspires to be, advises Munzoor Shaikh, health care and insurance practice director for health care consultancy West Monroe Partners, based in Chicago, Illinois.

He characterizes hospitals as falling into three categories in their approach to IT:

• Traditional hospitals see IT in a support role, as a utility and a cost center. These hospitals — often the sole provider in a geographic area — are reactive about upgrading infrastructure and software. They depend on outsourcing for cybersecurity. Their executive team tends to be risk-averse. By pinching pennies on IT, they have a bigger war chest for investment in other business priorities.

• Experimenters are willing to integrate select IT functions into the business as revenue enhancers — usually disease- or condition-specific subsets of patient engagement, clinical access, data analytics and value-based care activities. Their executive personalities are a mixture of risk-averse and risk-taking. They tend to be good at defending market share but not at growing through major expansion of IT capabilities.

• Innovators work hard at cultivating brand image and can command favorable payer contracts. They’re patient-centric, striving to improve customer and caregiver experience by proactively integrating IT into clinical business and leveraging IT investment through constant, small experiments that either fail (and are scrapped) or succeed quickly. They invest in population health across the full continuum of care. Their executive team is aligned and generally comfortable with risk. Their IT models are industries outside health care.

How many hospitals fall into that category? “I don’t think there’s a truly innovative hospital yet,” admits Shaikh.

IT expenditure was $2 million higher, on average, for 2017 than in 2016 at health care organizations. Why is that such an important metric?

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Munzoor Shaikh

“Look out at the world,” Shaikh responds. “The population is increasing and the average age is increasing. When you have more people who’re older and who tend to be sicker, there’s a surge in demand for health care. The supply of providers won’t — can’t — keep up. We’ve got to rely on technology to close that gap. And yet most hospitals don’t see IT as part of care delivery. They don’t look at technology as an asset.”

Accordingly, Shaikh has some recommendations as hospitals approach budget season:

• Traditional hospitals — with reimbursement pressures based on outcomes measurement, bundled payments and risk-sharing; consumer-driven demands for transparency; regulatory shifts; and growing threats to cybersecurity — should outlay 1.1 percent to 1.6 percent of capital expenditures for IT functions, and 3 percent to 3.4 percent of operating expenditures.

• Experimenters should anticipate devoting 1.6 percent to 3.2 percent of capital expenditures and 3.4 percent to 5.3 percent of operating expenditures to IT.

• Innovators should plan to earmark 3.2 percent to 5.4 percent of capital expenditures and 5.3 percent to 6.6 percent of operating expenditures to IT initiatives.

“You’ve got to rebrand IT to be part of care delivery,” Shaikh urges. “And you’ve got to rebrand yourself to be different from what you are today. That’s the wake-up call we give clients. There’s an awareness gap.

“Personally, I think the hospital of the future will say that [even the high ends of the range] are not enough. If you look at other technology-driven companies, IT spend should maybe be 20 to 25 percent.”

David Ollier Weber is a freelance health care journalist based in California.