2005 to Test Health IT Spending Savvy

Opinion: Although major health care providers are still financially stressed and federal government resolve may be wavering, next year is still shaping up as one for advances in health IT for U.S. hospitals.

Hospitals are expected to increase their capital expenditures on health IT for the coming year by anywhere from 6 percent to 10 percent. That means a big step up in terms of the operating budget; it is expected to swell to 3.5 percent, from 2.5 percent last year, according to figures from the health care group of technology consulting firm Capgemini.

This uptick is anticipated despite continued financial pressures on health care providers. Among hospitals, "a third are losing money, a third making money and a third breaking even," said Lewis Redd, national practice leader at Capgemini Health.

Its still a financially stressed industry, even after a series of consolidations and cutbacks over the past several years. But now that the most obvious cost-savings have been gleaned, many hospitals are turning to IT as a means of creating further efficiencies. This makes them willing to invest further in IT, despite the initial expenses.

With IT systems that help to enable more accurate patient testing, faster results, fewer errors, shorter stays and overall better treatment, many hospitals are optimistic that implementing more efficient patient administrative systems as well as clinical systems, such as electronic prescribing and a fully integrated electronic health record system, will improve the bottom line while elevating the quality of patient care.

This trend is being reinforced among large institutional health care providers through the pay-for-performance trend, where government reimbursement through agencies such as CMS (Centers for Medicare & Medicaid Services) will soon start hinging upon the statistics indicating that quality care is being provided by a given facility.

Already, hospitals have been warned that if their quality indicators are not up to snuff, they can expect slower reimbursement or even a reduced reimbursement rate. Demand for proof of quality care is escalating as more hospitals publicize their indicators.

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Health insurers are starting to look to these when making agreements with providers, and even individual consumers are becoming more savvy about quality-of-care statistics.

Although internal IT improvements may be at the top of the list for next year, communitywide systems sharing electronic medical records are likely still at least a decade away.

After a strong showing of support on the federal level last year, $50 million in federal funding earmarked for electronic medical record systems got eliminated from the budget at the last minute due to the pressure from other line items perceived as more urgent.

The appointment of national health IT coordinator David Brailer, whose position was created earlier this year by President Bush, is definitely seen as a step in the right direction. But many wonder if the position isnt relatively toothless, without the ability to mandate standards or to provide significant investment.

Click here to read more about the need for federal investment in health IT.

"There was a lot of excitement with David Brailer," Redd said. "I think the fact that its not funded leaves a lot of people feeling skeptical that leadership is not going to come from federal or state government."

Many smaller health care providers, including physician practices, are even more reluctant to invest in IT than hospitals are. Many are waiting for a strong push from outside forces, given lingering concerns regarding the benefit to their bottom line and their ability to create and maintain an up-to-date system that is easy to integrate externally.

To read the full story on the dilemmas facing small physician practices, click here.

For hospitals, physical renovations and merging legacy systems following business consolidation are another push toward making considerable IT investments.

"A lot of these hospitals that have been operating are old, they are renovating or getting into a new area in terms of types of patients they want to treat," said Bruce Lemon, senior vice president at health care consultancy First Consulting Group. "They want state of the art in terms of IT like wireless networks and centralized scheduling."

The continuing merging and consolidation in the hospital industry also means that many providers are left with different legacy systems and are "looking for ways to consolidate those systems internally," Redd said. They need to be "consolidating platforms and modernizing them to enhance and extend their useful life."

Another growing way for hospitals and insurers to trim costs is to employ outsourcing in their execution of IT and call centers. Everything from the creation of software packages to the execution of call centers for IT support or customer service is currently being outsourced.

"Theres a trend toward global sourcing," Lemon said. "People are looking for opportunities to reduce the costs; everyone including life sciences, pharmaceuticals, health insurance companies have all made that move. Thats the trend, and its not going away," he argued.

"Its not a question of if you should use that, its a question of when. A lot of our clients think that its worth it if they can save $5 million on a $20 million investment."

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