Sponsored by West Monroe Partners
Over the past decade, growth in hospitals’ IT spending exceeded the growth rate of overall healthcare expenditures, largely due to massive investments in implementing electronic health records (EHR) technology. With those investments mostly in the past, the onus is now on hospitals to define how – and how much – they will invest in technology going forward. New analysis from West Monroe Partners suggests that hospitals of the future will fall into one of several IT investment profiles that will dictate both the level and focus of their IT investment.
Taking a proactive stance on technology is difficult in an industry where revenue, investments, and policies are highly regulated. Increasingly, though, health systems must be prepared to innovate at the speed of market, and technology will be at the center of their ability to do so. This article examines key findings from West Monroe’s analysis and why evolving healthcare delivery models, highlighted by recent examples in the Seattle/Puget Sound marketplace, point to a need for continued strong IT investment.
Growth in IT spending fueled by “mass scrambles” to implement EHR technology
West Monroe’s analysis of market data found that, nationally, the annual growth rate of hospital IT budgets outpaced the annual growth rate of overall healthcare expenditures by as much as five times between 2007 and 2013 (Figure 1). Furthermore, the analysis highlighted two investment peaks, or “mass scrambles” – the first driven by the American Reinvestment and Recovery Act stimulus package, and the latter as late-adopters completed EHR system implementation in time to receive reimbursements and meet Meaningful Use requirements by the end of 2012.
Figure 1: The “mass scrambles” of hospital IT budgets. Sources: Centers for Medicare & Medicaid Services, HIMSS Analytics® - Healthcare IT State of the Market 2016
Market forces point to continued strong IT investment
With no monumental legislation or regulations to further direct IT spend, as ARRA and Meaningful Use did over the last decade, technology strategy is now at the discretion of executives, who must decide where – and how much – to invest going forward.
West Monroe’s analysis cites forces such as reimbursement pressures, consumerism, an evolving regulatory environment, population changes, and cybersecurity that will continue to drive health systems’ IT investment. These and other forces are changing traditional healthcare delivery models, as well as the way providers interact and collaborate with others within and outside of the healthcare ecosystem. These shifts are readily apparent in the Seattle/Puget Sound area.
Although the region hasn’t experienced as much consolidation of health systems as some other major markets, collaboration among providers is increasing. In some cases, collaboration is helping independent health systems remain viable, such as Trios Health’s recent announcement of a potential partnership with RCCH HealthCare Partners and UW Medicine to help it regain financial stability and bolster its clinical offerings. In other cases, regional health systems are setting aside competition in the interest of creating innovative solutions for promoting better health and a more sustainable system. An example is the 2015 introduction of Cambria Grove, a healthcare hub where Cascadia’s innovators are working together to develop transformative, value-driven healthcare solutions for the industry and local community.
New forms of collaboration with payers and others continue to evolve – in many ways and for a number of reasons. Examples range from the Washington Health Alliance to the Swedish Cancer Institute’s partnership with precision medicine company GNS Healthcare to launch a machine learning collaboration that improves breast cancer care at the institute and from the Seattle/King County Clinic, now in its fourth year, to the Seattle Seahawks partnership with Virginia Mason, CHI Franciscan Health and the American Cancer Society to promote early detection through the Crucial Catch: Intercept Cancer campaign.
Another industry shift with strong roots in the Pacific Northwest is a trend toward employer-led health initiatives and direct contracting between employers and health providers to manage costs. Boeing is one of the most prominent examples of this – having established direct contracts with providers in Seattle in 2015 and then extending that strategy in three other markets. Intel also has been a leader in this movement, working with Seattle-based Virginia Mason Medical Center.
A common denominator in all of the examples above is readiness to pivot quickly to introduce new business models and to work fluidly with new partners in care. Across the board, there are significant implications for data sharing and governance, logistics, and coordination of care management. Health systems will need to invest in capabilities such as modern architecture that allows them to rapidly introduce new services or capabilities quickly and analytics that enable them to measure performance and manage care in evolving healthcare delivery models.
Three possible paths to IT investment
Three approaches to future IT investment emerged from West Monroe’s research, each with a different guide on spend as a percentage of revenue and different investment priorities (Fig. 2):
1. Innovators will emphasize consumer centricity, seeking to deliver a superior consumer experience via a superior provider experience. These organizations will continuously evolve their technology to innovate, optimize costs, and enhance revenue. They will gain inspiration from industries’ use of technology, while at the same time learning from the best of their peers.
2. Experimenters will use IT as a cost center for most functions, but for select functions, technology becomes a true business partner in improving operational efficiency, reducing cost, and enhancing revenue.
3. Traditional players will use technology as a utility and cost center. These organizations will spend resources on other business areas (primarily facilities, but also quality, safety, patient care, etc.), while IT plays a supporting role.
Figure 2: IT spend and priorities by investment profile
Talent – whether in-house or outsourced – will be key to change
Different investment strategies also call for different ways of approaching technology talent. Traditional players will tend to insource IT personnel to the extent possible – with few exceptions in specialized areas, such as security – to maintain steady operations at a low cost. Experimenters, on the other hand, will diverge with respect to outsourcing. “Home-grown” experimenters – typically academic medical centers or health systems in metropolitan areas rich in technology talent, as is the case in the Seattle area – tend to keep innovation and talent in house. “Leveraged” experimenters maintain a smaller internal staff to keep costs low, relying on strong partners in the vendor ecosystem for innovation and transformative technology. The same is true for innovators, although these organizations tend to have a larger and more diversified innovation pipeline across areas such as patient engagement, analytics, technology-driven patient care, and revenue models.
Notably, experimenters and particularly innovators will have a leg-up in attracting technology talent, which will be key to building an agile organization that is responsive to change. While the local market may be rich in technology talent, qualified resources will continue to gravitate toward organizations perceived as progressive – whether in the healthcare industry or otherwise. Health systems that want to attract this talent should be prepared to demonstrate their commitment to innovation.
In conclusion, no two health-system organizations are the same, and there is no set formula for navigating the technology road ahead. There will be many competing factors that influence the right technology profile and corresponding investment strategy for a particular organization. The important point is that health systems now must be proactive, rather than reactive, in defining that profile and developing their execution strategy.
Download the full report, “The next generation of health IT spend: Where should health systems invest?”
About the authors:
Dan Howell (above) is a director in West Monroe’s Healthcare and Life Sciences practice and leads the practice for the firm’s Seattle office. Contact: firstname.lastname@example.org
Munzoor Shaikh (above) is a director in West Monroe’s Healthcare and Life Sciences and leads Health Systems solutions. Contact: email@example.com