Our latest monthly Intelligence Report, which draws on the 6,000-plus healthcare executives who are members of the HealthLeaders Media Council, is titled "Healthcare IT: Tackling Regulatory, Clinical, and Business Needs." Why, then, is it mentioned in our weekly finance column?
Because healthcare IT is expensive. And the report reveals that it's becoming an ever bigger drain on hospital and health system bottom lines. And that an ROI from healthcare IT will be hard to find, despite the fervent hopes of healthcare executives.
Today, 40% of the 250 respondents say the operating IT budget takes up 2-3% of their organizations' overall operating revenue. But the respondents—who represent a range of C-suite leaders and VPs, including CEOs, CFOs, COOs, and CIOs—expect an upward shift in the near future. More than half (56%) say the operating IT budget will account for 4% or more of overall operating revenue, and a fifth expect IT spending to take 6% or more.
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Those percentages are historically high for healthcare, but not necessarily for other industries. You could argue that healthcare is simply catching up.
But what is that extra spending going toward? The top driver, ticked off by 52% of respondents, was regulatory reporting requirements, most notably ICD-10. The American Health Information Management Association (AHIMA) has long argued that ICD-10 codes will lead to better patient care, and it's certainly true that better coding can lead improve reimbursements, but in the end that's a lot of money to pay for more coders.
Still, a majority of survey respondents (58%) say their organizations invest in IT, meaning they expect a financial return, rather than simply spend on IT (indicated by 42%).
But while the survey indicates overall trends and expectations, the comments by individual executives reveal how they view healthcare IT. "IT will always disappoint if you expect a return," says the president of a large physician organization. "Most CFOs will say they haven't seen a ROI on the investments made in IT as an industry compared to industries like banking," says Donna Abney, executive vice president of Methodist Le Bonheur Healthcare, whose organization helped shaped the Intelligence Report.
Some executives blame the government; the CEO of a medium-sized hospital says, "The required expenditure on IT to meet government mandates far exceeds any financial benefit it will produce for the hospital. The Meaningful Use standards are there to serve the government/payers' purposes." Others blame technology vendors; the CMO of a medium-sized health system says, "IT is not yet flexible enough or open enough to show a true ROI. The proprietary nature of most vendors has a very negative effect on building and creating a truly patient-focused record and a healthcare IT system that gets us out of the 1970s in terms of technology."
Despite the varied takes on IT ROI, the survey respondents seem united about one thing: IT holds great promise for improving the mission and function of healthcare. "Technology helps improve patient care, ensure compliance, and facilitates analysis for continued improvement to patient care, which in turn helps in cost reductions and better bottom line," says the president of a medium-sized hospital.
That's why healthcare organizations spend on IT. But how they get from the present to this happy future state will vary; some executives will enjoy a strongly positive ROI on their IT investment, while others will spend, spend, and spend.
(Editor's note: Many of the figures cited here draw from the paid Premium version of our February Intelligence Report. A free version, containing HealthLeaders analysis but less data, is also available for download.)
Edward Prewitt is the Editorial Director of HealthLeaders Media.
