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A Living Document

September 25, 2008
by Daphne Lawrence
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Savvy CIOs create budgets for the short term, the long term, and everything in between

Rick Schooler

Rick Schooler

“IT budgeting is the toughest budget for health systems,” says Rick Schooler, CIO of seven-hospital Orlando Health System in Orlando, Fla. “Once they figure their revenues, hospitals start to scratch their heads and ask ‘Why is this IT thing getting bigger?’”

And it keeps getting bigger. As EMRs, and HIT applications continue their explosive growth, IT budgets must keep up. “IT is consuming, from a capital perspective; 20 to 25 percent of the capital budget or more, depending on the stage they're at with their EMR,” says John Vitalis, senior principal at the Chicago-based Noblis Center for Health Innovation. In the early stages of an EMR deployment, that figure can easily rise to 50 percent. Numbers like that take some explaining. “CIOs have to fight for every dollar and be very proactive,” according to Vitalis. He says good CIOs relate budget back to the hospital's business strategy.

Historically, long-term IT budget strategy used to project five years out. Today, however, that timeframe is shrinking. “Because technology is developing at such a rapid pace, it's really hard to do a strategic plan and IT budget beyond three years,” says Bill Phillips, CIO of 604-bed San Antonio, Texas-based University Health System. And as national nursing and physicians shortages continue, and patients become more like partners in their healthcare, many project a large push in home health and telemedicine. “There's going to be a lot of technology coming in the short-term future,” says Phillips. “I think predicting out past three years is not valid anymore.”

Bill Phillips

Bill Phillips

Inflation is also shortening the budget horizon and impacting areas like cable acquisition and construction. “The cost of copper cable is out of sight right now,” says Phillips. “How do I deal with that next year?”

Whether one, three or five years, most agree that IT budgeting should be an ongoing continuous strategic initiative, with top level executives kept in the loop. Schooler says his IT budget has doubled in seven years, with the organization endorsing those increases along the way. “You need a thermometer in your hand the whole time,” he says. “People need to be aware of where things are standing when you move forward because you can have radical changes from one year to the next in raw dollars.”

Del Dixon, CIO of 312-bed South Shore Hospital in Weymouth, Mass., says his tactical IT spending to support operations is examined constantly, too. “We never want to get into a position where every three years we're struggling and have to spend a large chunk of the capital budget on upgrading systems.” At South Shore, he tries to stay technology-current as much as possible with PCs and printers, software licensing, etc.“We do a technology refresh every year,” he says.

For long-term projects like an EMR, however, the planning may need to go out to five years — or even more. “We are doing forecasts that go out seven years,” says Schooler. Though he agrees that budgets aren't very accurate past three years, the pressure for capital procurement necessitates those predictions. “We have to forecast bottom line,” he says. “Then we incorporate debt service for bonds along with what kind of margin we're going to make and play that out.”

Whether with year-to-year or long-range forecasts, players in the IT budget process have expanded beyond the CIO. In addition to executive involvement, most agree the complex IT budget needs at least a dedicated FTE to work through the process. Vitalis recommends that large health systems have someone managing expenditures. “It could be an IT staff person or a financial person that resides in the finance department but is dedicated to IT,” he says. “Organizations need to look at the position as a necessary support function for the CIO.”

Schooler has a financial liaison who reports to financial planning, and says building a relationship into that department through this FTE is a best practice. “Though the report is to finance, he's our guy,” says Schooler, adding that when IT liaisons report to finance, there is more credibility. “Our guy knows all the extraordinary items that have been entered. I have to have a guy like that in their camp promoting what I'm doing,” he says. Schooler feels IT financial managers reporting through IT can easily become another mouthpiece for the CIO. “When they're part of the financial team, then you're going to have that support.” And, he says, they can't just show up at budget time and say, “I'm going to be your financial liaison.”

Effective governance calls for others in the organization to help with budget decisions as well. Dixon coordinates his budget through 200 South shore managers. “We ask them what they need, and break it out into clinical, business, and technology strategy,” he says. “Then we ask them to go back and prioritize. The CFO doesn't play in the room until we get near the end.”

That effective IT governance also means making capital investment decisions with senior executives, because those costs can easily spiral. “Each year, as we keep spending more capital, you start seeing more FTEs, more education required for those FTEs, more maintenance, and so it begins to build,” says Schooler. “And it's not linear.”