Hospital IT spending jumps high

Whether the investments will generate ROI keeps some execs up at night
By Paul Cerrato
11:01 AM

Hospital executives have never been frivolous when it comes to investing in technology, but as reimbursements shrink, the need to carefully analyze each purchasing decision has never been more urgent.

Given all the worthwhile – and not so worthwhile – options, what choices are hospital administrators currently making?

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Since IT spending is largely taken up by meeting meaningful use and ICD-10 requirements, said Chantal Worzala, director of policy at the American Hospital Association, hospitals don’t have much left over for investments in other things.

Capital expenditure per bed for IT grew by 62 percent between 2010 and 2011, Worzala said, whereas total capital expenditure per bed grew by only 2.6 percent.

Looking at the financial data from another perspective, capital expenditure for medical equipment replacement overall – including non-IT technology and other equipment – dropped from 30.4 percent in 2009 to 27 percent in 2013 and new medical equipment costs went from 44.5 percent to 13.8 percent, according to Jim Adams, executive director, research and insights, at the Advisory Board Company. During the same period, IT purchases went from 21.8 percent to 24.2 percent.

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Trying to figure out if this increasing investment in IT will generate a return on investment is keeping C-suite executive up at night. “CIOs say it is increasingly difficult to establish ROI for EMRs” said Marty Conners, director of national healthcare IT practice at Eliassen Group, an IT staffing company. Citing a January 2013 Beacon Partners survey of more than 200 hospital CIOs, he pointed out that only 40 percent measure ROI on their EMR implementations. And only 36 percent of this smaller group is convinced their ROI calculations are accurate.

But ROI may not be as important to hospitals, noted Adams from the Advisory Board. Hospitals, he said, are no longer looking at IT investments purely from an ROI perspective. Adams, a former CFO, explained that IT is now part of “strategy enablement.”

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As the industry shifts from a fee-for-service to an accountable care model, leading hospitals are investing in IT to manage the greater financial risk they are now facing. Technology that can improve coordination of care, for example, can help manage that risk, said Adams. And while many organizations are focused on buying EMRs, more sophisticated providers are putting their technology dollars into EMR optimization.

Hospital administrators are making other major IT investments in data security – including encryption software – mobile device management software to enable BYOD, data loss prevention tools, cloud technology and health information exchange, said Alaap Shah, an attorney who specializes in IT for the law firm of EpsteinBeckerGreen.

But even with all this IT spending, critics continue to question whether providers are making the best use of their technology budgets. A recent Ponemon Institute survey of more than 500 healthcare professionals concluded that “U.S. hospitals are absorbing an estimated $8.3 billion annual hit in lost productivity and increased patient discharge times” because they are not using mobile device and internet services as well as they should be in patient care.