Hospitals and health systems across the United States are feeling the impact of the economic downturn. Facilities are closing, jobs are being cut, and resources are becoming scarce. As a result, projects designed to improve processes and operations are taking a back seat at many organizations.
According to research conducted by the American Hospital Association (AHA, Washington), total margins fell to negative 1.6 percent in the third quarter of 2008, versus positive 6.1 percent a year earlier. And the ripples are being felt everywhere. A joint study by the AHA, the College of Healthcare Information Management Executives (CHIME, Ann Arbor, Mich.) and the National Alliance for Healthcare Information Technology (NAHIT, Chicago) revealed that 33 percent of hospital executives have trimmed their budgets, while 55 percent are experiencing delays in accessing capital.
What aspect of the economic downturn is most concerning?
While just months ago it was hoped the healthcare industry would be insulated from the financial crisis, any lingering beliefs in that have since dissolved.
“Nobody is asking if this is a real downturn anymore; they're asking how long it's going to last,” says Jeff Bauer, Ph.D., partner, Management Consulting — Futures Practices Leader at ACS Healthcare Solutions (Dearborn, Mich.). “As an economist, I think the best case scenario is stabilizing things two or three years from now.”
A large number of hospitals had relied on investment income, he points out, which became problematic when the stock market drop turned investment gains into losses, leaving health organizations with gaping holes in their funding.
Says Chuck Christian, CIO of Good Samaritan Hospital in Vincennes, Ind., “I think everyone that has any money in the stock market or investments — and that's most hospitals — is going to take a hit.”
To add fuel to the fire, the credit crunch has raised the cost of borrowing money. Interest payments on borrowed funds increased by an average of 15 percent from July to September versus the same period in 2007, says the AHA, making the outlook for hospitals grim.
“It's hard to access money, so it's hard to finance facility and technology needs. And the cost of borrowing money is increased and oftentimes it's harder to borrow money, even at any price,” says Carolyn Scanlan, president of the Hospital and Healthsystem Association of Pennsylvania, an advocacy group based in Harrisburg, Pa. “At the same time, hospitals are seeing a whole series of changes in the kind of admissions that they're getting. The number and mix of patients is changing; we see lower admissions on elective procedures and outpatient procedures, and rising unemployment is leading to increased uncompensated care.”
With less money for investments, many hospitals are pushing back their plans and adopting a wait-and-see approach. Fifty-six percent of hospitals are considering holding off on renovations or plans to increase capacity and 45 percent are delaying purchase of clinical technology or equipment, according to the AHA survey. And, as many feared, the belt-tightening has trickled down to the IT department.
The study — conducted by CHIME, NAHIT and AHA — found that a large majority of executives are delaying or lengthening time frames for completing new facilities or facility upgrades (74 percent), deferring IT equipment purchases (57 percent) and delaying or lengthening time frames for implementing health IT initiatives (52 percent). And what's worse, nearly all respondents (94 percent) have cut IT budgets by extending implementation time for existing projects and delaying or reducing the slate of new projects.
Among the many downsides, there is an upside, Bauer says. “There's a silver lining in the sense that hospitals — sooner than expected and through circumstances beyond their control — are now being forced to move toward efficiencies that they should have done anyway.”
Farming out IT
One of these efficiencies, Good Samaritan's Christian has found, is outsourcing. However, instead of assigning large-scale tasks that are part of the organization's core IT work, the CIO has deemed it more beneficial to dole out smaller jobs, like manning the help desk and rolling out PCs to outside sites.
“We're a community-based hospital, so we don't have the resources — either human capital or financial resources — to do some of the things that a lot of places do,” he says. “We had to be more focused and make sure that we're doing the right things for the right reasons.”
About nine years ago, Good Samaritan took a hard look at the resources that were being used to perform tasks like a break-fix. Through research, Christian determined that too much of his managers' time was being exerted on tedious activities. So when the organization devised plans to roll out more than 500 desktops over a three-year period, Christian didn't want to hire more staff or use existing staff to implement and manage the PCs.
After meeting with a few vendors, Good Samaritan settled on AME Group, an outsourcing company located in Vincennes. “It made the best sense for us,” he says. “We had some bigger projects coming along that I was going to have to outsource if I couldn't get my own team to do, so we outsourced the help desk and all the break-fix, and that includes the procurement piece.”
The organization developed standard desktop configurations, standard images and service-level agreements with AME, and decided to lease the hardware through a local bank, which helped to further cut costs. As a result, Christian's team has been able to save around $400,000 every three years (when PCs are refreshed). As part of the contract, the organization pays a flat rate per desktop per month, with the amount charged back to each department that uses the desktops.
This presented another cost-saving benefit, says Christian, noting that once he began holding individual departments accountable for their budgets, the demands for new equipment and technologies tapered off significantly.
The final advantage Christian cites is that by farming out more menial tasks to an outside company, it enabled his own staff to further develop its skills and focus on higher-level tasks. Rather than having to tend to jobs like changing hard drives or break-fixes, his staff was freed up to replace the wireless infrastructure and install security related to the firewall and intrusion detection. In addition to saving money, says Christian, “I was able to provide a little different career path for some of my staff members and create some internal expertise.”
Hospitals are also more heavily scrutinizing which IT projects are worth the investment and which need to be relegated to the bottom of the list. Organizations like Christus Health, a Dallas-based, not-for-profit system of more than 50 hospitals and long-term facilities, were forced to make adjustments before the stock market dropped, as several of Christus' hospitals were impacted by the storms that hit in the summer and fall of 2008.
“What we're seeing at the top-line level is our patient volumes remain the same and our hospitals are just as full as they have been, but there's a significant change in the patient mix,” says George Conklin, senior vice president and CIO. “We're seeing a decrease in insured patients and an upsurge in the number of self-pay patients.”
Christus entered the fiscal year with a strong focus on containing costs from both an IT and an organizational perspective. That, Conklin says, entailed operating a zero-based budget — where every dollar is assigned to an expense category — and implementing stricter practices for evaluations of any new projects. According to the new policy, any project with a combined capital and operating cost of $250,000 must be reviewed and approved by the information management oversight committee.
“That's one thing we did to get control on that appetite, which was very clearly a significant one,” he says (see sidebar above).
One step further
With this new focus on scrutinizing projects, Conklin and his team realized that while delaying implementations might offer some relief to the bottom line, more needs to be done. “We're taking an extensive look at our procedures and processes within information management to determine if there's various ways in which we can cut complexity and make us more efficient as an organization,” he says.
One way to do that, Conklin and his team decided, was to contact their large vendors and request a 20 percent reduction on maintenance fees. Right away, Christus received positive responses from vendors; even if they didn't want to cut the full 20 percent, they were willing to negotiate terms like lowering maintenance costs or expanding services.
“When you look at new services that some of the vendors are adding for us along with reduction in costs, it's a pretty significant reduction,” says Conklin, who urges CIOs to remain in the drivers' seat in terms of vendor relationship. CIOs, he says, need to take the stance that if vendors aren't willing to step up, they may lose the account. “Everybody's listening, everybody is being creative, and one thing vendors are doing is looking to comply with our wishes for the near term, but tie in some commitments for the long term.”
While Conklin understands the need to tighten belts during tough times, he stresses it's critical to maintain a strong vision and keep improving process.
“Times are very scary, but this isn't a time for knee-jerked responses,” he says. “Putting a band-aid on the situation is the absolute worst thing people can do. If you hunker down and only focus on your navel during these coming days, you're liable to look up and find yourself confronting a speeding train. You need to be doing the things you need to do to say alive during these times, but you also need to make sure that in staying alive, you're positioning yourself for the future.”
In tough economic times, it becomes all the more critical for CIOs to be part of the solution by pushing clinical transformation and performance improvement.
“CIOs need to be actively part of the strategy, part of the visioning to define what's going to survive and what ought to emerge from this economic firestorm, and demand that they be at the table,” Bauer says. “But all the while, they need to have the vision of, here's what needs to be done, now how can I make my IT resources the tool that helps you do it as well as possible.”