They get it.
Top executives of healthcare organizations are recognizing, with a flourish, the crucial role information systems play in realizing their strategies and fostering the productivity required for success.
Chief executive officers are taking this revelation and either running with it as final decisionmaker or taking it to their board with evangelism in mind.
That's important because CEOs and boards make the final decision at about three-fourths of the hospital organizations polled in MODERN HEALTHCARE's eighth annual survey of information systems trends.
The survey shows that the board room and executive suite are becoming important checkpoints for clearance of information technology projects (See chart, this page). Elevated spending is making pursuit of information one of the thorniest considerations for those with a fiduciary responsibility.
"The dollars are just too big," says Frank Cavanaugh, a principal at Coopers & Lybrand and national director of its Chicago-based integrated healthcare consulting practice. "When the dollars are this big, (the decision) has to come from the CEO."
Judging from the responses of 440 executives to this year's survey, information system spending at healthcare organizations is breaking out of its oft-lamented stagnation.
Many industry observers have estimated information spending at 2% of total spending and warned that it needs to go higher if integrated delivery networks are to succeed.
About 40% of responding hospitals still spend 2% or less on information systems, but counterbalancing that are the 10% of the sample that currently devote more than 5% of operations to information systems operations and capital. The remaining 50% are somewhere in between (See chart, p. 76).
The aggregate spending average this year stands at 2.55% of operations, according to a calculation of results by the survey's two co-sponsors, Coopers & Lybrand and Chicago-based Zinn Enterprises.
Mixed bag. Although spending is rising, it's not accompanied by wholehearted enthusiasm and confidence in the expected benefits.
On one hand, decisionmakers are getting away from justifying their purchases based on length of payback period, return on investment or other traditional measures that experts say are insufficient to predict benefits of information technology.
While respondents overwhelmingly say the CEO has bought into the belief that such technology will yield tangible benefits, the CEO has little beyond intuition to prove it. So instead of making a tangible case, seven of every 10 respondents say their last project was pitched to their board as a strategic imperative (See charts, this page).
"They believe in tangible value but use intangible value to justify it," Cavanaugh says. That's putting decisionmakers in an uncomfortable position, because "strategic support" remains an uncharted and foggy terrain into which to steer multimillion-dollar capital commitments on faith alone (See related story, p. 86).
Executive change. The heightened interest and involvement of top executives is reflected in the makeup of this year's survey sample. For the first time, CEOs represented the top job title among those electing to respond on behalf of their institution.
Of the senior executives responding, 33% are CEOs. Last year they made up just 20% of the sample. Chief information officers constitute the same 25% as last year, but chief operating officers are up to 17% from 7% in 1997.
Chief financial officers are less involved, accounting for 15% of this year's survey. Last year they were the dominant respondent at 33%.
Some of that shift is a reflection of industry consolidation, Cavanaugh says. Smaller, once-independent hospitals now are in the sphere of influence of larger organizations, whether in a merger or a lesser affiliation based in part on acquiring better information technology than an individual site could afford, he says.
Only about 35% of respondent organizations have 200 or fewer beds, compared with 48% last year. At the high end, 32% have more than 400 beds, compared with 25% in 1997. Furthermore, 8% of the respondents manage more than 1,000 beds; organizations of more than 600 beds make up 20% of the sample.
CEO involvement in information strategies "has grown significantly in the last 12 months," and it's no coincidence that it comes at a time of increased consolidation activity, says Everett Hines, a Parsippany, N.J.-based principal with the integrated healthcare consulting practice of Coopers & Lybrand.
"Places that merge and don't get their act together quickly will tend to disappoint and fail," Hines says. A key sticking point is information systems, which can be delayed at the outset of strategizing. Governing boards typically are looking for savings from consolidation to back up promises made at the time of the merger, and information systems are a significant expense without an obvious payoff, he says.
"They want predicted savings," Hines says of board members. "When it comes to information systems, there's not a savings."
Although executives of some merged networks are making headway in explaining the more complex reasons for needing computerization, "translating that to the board is difficult," he says. "This is the greatest challenge facing the CIOs and CEOs today: the resistance and the shock and the apathy coming from boards" regarding information systems.
In the past, the CIO understood the need for information technology but had to persuade the CEO to go along, says Tim Zinn, president of Zinn Enterprises, a healthcare information technology consulting firm. Now the CEO understands, but "he still doesn't know how to convince the board," Zinn says.
Thus the task of the plugged-in CEO is to steer the decisionmaking context away from traditional frameworks and substitute a conversation about what the institution intends to achieve by combining forces and integrating expertise, Hines says.
Managed-care catalyst. In their efforts to argue for value, top executives are beginning to find an ally in their physicians, Cavanaugh says.
Physicians are recognizing the benefits of plentiful patient data to successful medical practice, he says. Ironically, the force bringing those benefits to light is something physicians love to hate: managed care.
Healthcare needed a strong economic motivation to get past the sheer expense and complicated engineering inherent in computerizing physician order-writing and patient treatment results, among other tasks. Managed care, with its demands for financial and operational cost control, became the economic driver, Cavanaugh says.
And though cost-oriented automation initially put physicians on the spot by scrutinizing their practice decisions, it also has put enough clinically helpful information in front of physicians to get them asking for more -- demonstrating the clinical value of information systems irrespective of managed care, he says.
So even if the pressure of managed care were to let up, "there's too much value to the clinical process" to let up on information technology, Cavanaugh says.
Recognition of clinical potential is helping the CEO of Louisiana State University Medical Center in Shreveport justify jumps of more than 20% a year in both capital and operating budgets for information systems during the next three years.
As the medical center's top executive, Ingo Angermeier makes presentations on spending needs to the university chancellor -- and his physician staff is in there throwing its weight behind the projects. That's because physicians have "recognized the movement and relevance of bedside information" as beneficial to day-to-day practice, he says.
Although the doctors got their first taste of information technology in the form of cost-oriented observations of their practices, computers created the ability to "drill down" into clinical underpinnings of those observations, and physicians have become intent on using the data for clinical decisions, not just managed care.
"They're trained to focus on what makes a difference on the human condition," Angermeier says, explaining the application of managed-care data to medical use.
Requests for computerization now are emanating from clinical departments much the way requests for big-ticket machines once did. In radiology, for example, a third of the department's latest capital request involved computer projects such as the ability to transfer images to a digital format, create electronic files and send them to physician desktop computers, Angermeier says.
The radiologists "understand that hardware and software can enhance their practice the same if not more so than new cameras," he says.
Clinical vs. financial. Such observations underlie general support at LSU for a managed-care approach that's more clinically than financially based. Cost-control efforts up to now have revealed that "clearly the real expense of healthcare has more to do with ordering this or ordering that without knowing what goes on before or after," Angermeier says.
The next computer wave will include significant counsel from the hospital's chief clinician, he says. That's a post being created and relied upon more and more as hospitals seek ways to plug their physicians into medical uses of computers, or "clinical informatics," Zinn says.
In fact, 7% of respondent institutions say a chief clinical officer made the final decision to purchase a clinical information system. That's more than either CFOs or COOs.
Clinical computing is a tougher and more expensive undertaking than the financially oriented systems were, Angermeier says, because they are built with more attention to customizing features for a particular set of physician preferences. That increases the chance that the system will be accepted and productively used by clinicians, but the technical support involved in reaching that point is daunting.
LSU Medical Center already has invested in much of the infrastructure necessary to enter, move around and report information electronically. But Angermeier still frets about what remains to be done. "We're really playing catch-up," he says.
And that means planning capital projects worth about $10 million a year for the next three years to get data to and from physicians, pharmacists, registration clerks and others on the clinical front lines.
But the objective also creates new and permanent operating costs to support productive use and modification of a system's clinical features and functions. "Folks closer to the end-user can massage and change it the way they need it," Angermeier says. "That's wonderful but expensive -- and distributes the expense of computerization outside the four walls of the information department."
Someone has to be there for questions from clerks as well as clinicians, and questions are getting more sophisticated with the systems already in place. "Our 24-hour help desk needs to be several people deep," Angermeier says.
Operational expenses. For the second straight year, 6% of surveyed hospitals say they will increase their rate of direct operating expense more than 20% a year during the next three years. But the dichotomy in the industry also continues, with two-thirds of respondents planning increases of 10% or less (See chart, p. 76).
Sometimes lower spending projections can be misleading at this stage of evolution in healthcare computerization, however. West Jefferson Medical Center in Marrero, La., expects operational expenses to rise less than 5%, but that's because it already has geared up for computer operations, says Mark McGinnis, its CFO.
Between 1995 and 1997, information systems staff increased to 35 from 18, but McGinnis says he doesn't expect that number to keep rising. The staff increase is in conjunction with commitments made to a firm brought in to completely revamp the facility's information systems capabilities, he says.
It's part of a calculated game of catch-up planned to get maximum value out of an investment of $3 million to $6 million a year (See related story, p. 86).
Hospitals and health systems budgeting for operational increases recognize they have to spend money on staff expertise to get value for the investments made in information systems, Cavanaugh says.
Added staff is especially important for information systems that computerize patient records or supply support for clinical decisions. Unless sophisticated features of systems are continually exploited, hospitals "put them on the shelf and have nothing to show for them," he says.
In the survey, nearly half the respondents say their information systems staff will increase 10% to 25% this year, and another 10% of respondents set their projections at more than a 25% increase. Of the rest, 39% see staff levels unchanged, and 3% predict staff reductions.
Zinn says staff levels are being bumped up by "people who work with users on change management issues," not just techies in the back room.
Projects press on. Capital spending continues to rise, with 14% of survey respondents projecting increases of more than 20% a year for each of the next three years while about half are limiting their increases to 10% or less (See chart, p. 78).
Overall, the weighted average increase in capital budgets is 10.5% turning upward again after last year's decline to 9.4%. The weighted average two years ago was 10.9%.
For direct operations, the weighted average increase is 8.3%, up slightly from last year's 8.2%.
Weighted averages are calculated by taking the midpoint of each spending range and multiplying it by the percentage of respondents selecting each spending range.
Capital costs are piling up not just from a roster of anticipated needs but also from unforeseen requirements brought to light when systems begin operating in parallel, Zinn says. As organizations implement each new advance in technology, changes in one system beget a "trickle-down effect" of changes in others, he says.
Heading the list of implementation projects once again: computerized order entry, a capability either in use or in implementation by more than 70% of surveyed organizations. The next furthest along is the initiative to identify and gain access to patient information and history throughout a healthcare network, known as a master patient or member index (See chart, p. 78).
Managed-care software packages, by contrast, are only a middling project on the implementation docket -- a puzzling development at first glance given the expressed importance of managed care as the top information system priority for the fourth straight year (See chart, p. 80).
But Zinn says it's evidence that hospital organizations are shooting for something more fundamental than subjecting operations to managed-care cost scrutiny. They are more interested in organizing operations to better manage care.
Internal reorganization. The second-biggest computer priority -- improving decision support for clinicians -- plus a third priority for improved productivity adds up to "a very succinct 1-2-3 punch" for information systems development, Zinn says.
Those priorities, in turn, address the most pressing needs outlined in the survey for computerization to integrate health systems and improve managed-care readiness (See chart, this page).
The top three needs center on creating accessible and comprehensive information flow throughout an organization on all patient encounters, enabling hospitals to meet their responsibilities under managed-care contracts, he says.
The most pressing future need is for a data repository to advance the sharing of patient information systemwide. Zinn says that's the logical progression: Meeting the top three current needs can help hospitals get to that data repository of the future.
Succeeding as a complex delivery system also requires more attention to the efficient hand-off of tasks than in the days when an institution was a self-contained operation. This year's survey attempts to measure that activity for the first time by adding to the status list of key projects a computerized feature called "work-flow automation."
The result: Although few respondents say work-flow automation is operational at this point, they identify it as the most active project in implementation.
By keeping track of key work on its way to the next point in the work process, the automation "begins to build the monitoring infrastructure" for managers to get a grip on operations, Zinn says. That includes being able to identify bottlenecks and shift resources around to correct them.
Different expectations. In the final analysis, healthcare executives are trying to identify their primary business rationale for using information systems -- and it's a virtual tie between improving worker productivity and creating competitive advantage (See chart, this page).
However, the survey detected significant cross-purposes between CEOs and CIOs. Chief executives were twice as likely as CIOs to identify competitive advantage as the primary rationale, while the top officers in charge of information homed in on worker productivity by the same 2-to-1 margin over CEOs.
That's something the two executives will have to straighten out so they communicate a common message to the board and the organization, Zinn says. "If the vision isn't in sync, the (anticipated) benefits won't be in sync, because the expectations are different."