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Scaling Back Strategically

July 24, 2008
by Richard Rogoski
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Taking the scalpel to IT budgets is less painful when done with a calm, measured and steady hand

In these tough economic times, many hospitals are looking for ways to drastically cut spending. Inevitably, IT budgets get scrutinized and CIOs are forced to justify planned expenditures. But even if IT budgets need to be trimmed, that doesn't necessarily mean strategic initiatives have to be scrapped.

For some hospitals, this isn't even an issue since the importance of IT is well understood and embraced.

An integrated approach

Lynn Vogel, CIO of the University of Texas M.D. Anderson Cancer Center in Houston, says his IT budget this year is relatively flat; no cuts were necessary. “The last actual budget reductions we had were five years ago,” he says. “Our business is growing and so is our revenue.”

Lynn vogel

Lynn Vogel

Over 4 percent of the organization's $2.8 billion operating budget is earmarked for IT, Vogel says, which supports researchers, clinicians and administrators. To ensure those funds are well invested, the organization supports IT through a democratic governance process. “We have five committees that meet regularly and review our IT investments,” Vogel explains. “We work very hard to make sure that what IT invests in is best for the institution.”

Tim webb

Tim Webb

Because these committees are composed of clinicians, researchers, department heads and administrators who review current projects and plan new ones, they become stakeholders. “The major decisions come from our constituents, not IT,” says Vogel. “We want them to lead the decision process as to what needs to be invested in.”

This does not, however, mean that everything planned will ultimately be approved. “Since our eyes are always bigger than our tummies, it sometimes comes down to priorities,” Vogel explains. Among those priorities at M.D. Anderson are mission-critical systems, regulatory issues and patient safety.

Tim Webb, a principal in the IT Group of Atlanta-based Kurt Salmon and Associates, says IT governance like that practiced at M.D. Anderson is definitely a best practice. “The real benefit is to the end-user departments. It's not an IT benefit, it's an organizational benefit,” he says. “The truly enlightened organization understands that if I want to improve patient care, it's going to cost more, not less. It's better for end users to know it's a strategic enabler.”

But if there is a chance that the IT budget will get cut, Webb recommends CIOs do their homework first. “You don't want to sit down with the CEO and CFO (unprepared) and be told you have to cut 5 percent, because then you have to ask, ‘What do I turn off first?’”

The importance of IT is also evident at Henry Medical Center in Stockbridge, Ga. Located 25 miles south of Atlanta, the 215-bed community hospital has launched a major IT overhaul. Last November, the board approved over $20 million for a five-to seven-year plan that includes new hardware, software and integration services, says Terry Wilk, the hospital's CIO.

The lion's share of this money will go for clinical IT systems, he notes, adding that the organization went live with PACS in April. Henry Medical Center plans to roll out a new pharmacy system in August; install laboratory and OR systems during November and December; and roll out nursing order entry, cardiology imaging and a physician portal in 2009. Not only will these new systems boost efficiency and improve patient care, but they will also make the hospital more competitive in the local market, he says.

Terry wilk

Terry Wilk

Although each department head submits his or her wish lists to department vice presidents, it's still the administrative council and/or the board that makes the final budgetary decision, based on priorities, Wilk says. And he admits that while revenue volume is increasing, collectable revenue has been sliding. This is mainly due to patients who don't have insurance, who are on Medicare or Medicaid, or who qualify for charity care, Wilk explains.

Susie krentz
“If capital budgets get cut, we have to focus on what we have now,” he says. Ensuring that applications are being fully utilized, instead of at just a percentage of their functionality, is one way to do that, Wilk says. Another way is to forego necessary upgrades on systems that will eventually be replaced, he says. That is what Henry Medical is doing now as it prepares to roll out more systems.

Susie Krentz

Setting priorities

Susie Krentz, senior principal and national practice director for strategies and planning at The Noblis Center for Health Innovation in Falls Church, Va., says the budgetary landscape is slowly changing. “When we do strategy planning, IT comes up as a strategic priority,” she says. “The good news is that there's a philosophical understanding as to the importance of IT.”

However, there is still a question of urgency, she notes. If, for example, a new CT scanner is seen as an obvious way to improve patient care, it will take priority over systems IT might want. But in making a case for IT investments, Krentz says, “The CIO has to help make the connection as to how IT helps patient care and efficiency.” Plus, she says, “They have to translate technology-speak into what clinicians and administrative personnel can understand, and its impact on the organization.”

And, CIOs also have to make it understood that IT requires a long-term commitment. “When initially talking about IT investments, they have to set out that in order to implement the technology, there's an ongoing investment and an ongoing impact on the IT budget,” she says.

To help justify an IT budget, CIOs should also seek the support of physicians as advocates and champions for IT investments, Krentz says.

If it looks as though cuts are inevitable, Krentz says CIOs should prioritize their own projects, saying, “This is what I'd like to have, but if we have to, here are three things we can postpone.”

Cutting where it counts

The promise of increased efficiency through IT is sometimes lost on CEOs and CFOs who don't see drastic or immediate reductions in spending. But Krentz points out, “You can't just put in IT and voila, you're more efficient. It doesn't just happen by magic.”

Webb says one way to boost efficiency and save money is to follow the trend toward hosted applications which reduces both risk and costs, and offers easier tech support.

Another way to cut spending is to renegotiate as many contracts as possible. For example, licensing contracts often carry an annual “true-up” payment. “Say you pay for 1,000 licenses. Add more, and you will have a payment due. But if you keep track of it, you can save money because you may not need the additional licenses.” Webb says.

Maintenance contracts should also be reviewed. “You can often get a better deal from someone other than the manufacturer without losing technical support,” he says.

Staffing is another area to put under the microscope when looking to trim the budget. “If you're using a lot of contract personnel, it might be cheaper to hire full-time employees,” Webb says. “The general trend is to outsource, but in healthcare, I don't see that trend.”

Healthcare Informatics 2008 August;25(8):24-26

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