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.