Like most healthcare institutions, Chester County Hospital in suburban Philadelphia has battled financial pressures during the past decade using every management option within reach. But despite all the effort to get lean and live within its means, the facility in West Chester, Pa., will have to do more, says Perry Pepper, its chief executive officer for more than 20 years.
The downward pressure on revenue levels is tremendous in the highly competitive Philadelphia area, he says. Besides constraining operating budgets, "capital is hard to come by" because of thin financial margins. Add to that a spiraling cost of malpractice insurance-increases of 70% to 125% in the past 18 months. Obstetricians are leaving the area after seeing a $65,000 increase in malpractice premiums in one year, he says.
Providers' resolve to take excess bed capacity out of the market and reduce staffing expenses has created a different operational challenge: managing high occupancy. "We've gotten out of the business of filling empty beds and into the pressure to empty filled beds," Pepper says. The problem of running at full capacity is compounded by a shortage of nurses, pharmacists and other professionals. When they're available, the wage they're paid to stick around adds to overhead and increases healthcare costs.
For the most part, today's pressures on hospitals are no different from years ago. But they keep coming back. And hospital executives are recognizing that after fighting financial threats to a standstill for so long, there's nothing left for the latest wave. "We've hit the wall in many respects trying to cut costs," Pepper says. "All the easy fixes in cost reductions are in place."
And that, in a nutshell, is why Chester County Hospital is willing to try some considerably complex fixes employing information technology in the management of clinical-care processes and workflow. It's the final frontier for operational improvement, an area largely uncharted and untamed despite a growing awareness that clinical processes constitute the bulk of activity and expense.
"Focusing on technology-enabled clinical performance improvement will produce huge cost savings for providers during the next five to seven years," says Stephen Furry, managing partner of V4 Consulting, an Indianapolis-based healthcare technology consulting firm. "The key here is that the focus is on improving clinical performance, not cost reduction. Cost reduction is a side benefit."
Healthcare providers have known about the opportunity for improvement for years.
For example, respondents to the last three annual Modern Healthcare surveys of information systems trends identified clinical information systems capacity as their top priority for developing integrated delivery systems. Respondents have put decision support for clinicians among their top three IT priorities for eight consecutive years.
But for various practical and political reasons, those declared aims have rarely become purchase priorities. IT spending overall remains at about 2.5% of operating budgets, and the bulk of IT spending has continued to focus on upgrading and expanding on ways to support basic business functions such as billing and accounting for patient services.
The reluctance of healthcare providers to gather the resolve for clinical management is reflected in the paltry 5% market penetration for information systems that involve physicians in any meaningful way, according to Gartner, a Stamford, Conn.-based information technology research and advisory firm.
But evidence is building that the demand for clinical-management products and services is about to increase significantly as provider organizations hit the same wall on cost control that's blocking further progress at Chester County Hospital.
"We've always complained about cost pressures, but they weren't so acute and we hadn't taken all the actions to trim cost, get lean and mean in all other areas," says Rick Skinner, chief information officer of Providence Health System, a seven-hospital network based in Portland, Ore.
Rushing into the clinical space
An industry survey by Gartner released last March hinted at an upswing in purchases of key components in an overall strategy of clinical-care computerization.
Nearly half the responding executives of hospitals and healthcare systems say they intend to add a clinical decision-support function to their healthcare IT works within the next two years. And nearly 60% intend to add a physician order-entry system.
A recent study of the healthcare IT market, conducted by McKinsey & Co. for an institutional investor and released to Eye on Info, concludes that overall hospital spending on IT will increase 6% to 7% per year through 2004 but that clinical spending will grow 13% to 15% annually during that period.
"It's very strong for now," says Mikael Ohman, a McKinsey associate principal, about the current demand for clinical systems. If the demand is matched by performance that meets expectations, "the groundwork is laid for this to continue at a pretty good clip," he says.
Industry experts and vendors of healthcare information systems report a genuine uptick in purchasing interest as providers get serious about clinical-care management applications. The only debate is over the timeline and intensity.
"I see steady, incremental demand for clinical systems-not explosive, but steady," says Harvey Wilson, chairman and CEO of Eclipsys Corp., Delray Beach, Fla.
Others see no less than a clear and convincing shift in the IT market away from traditional billing-oriented applications and toward efforts to computerize and control the way care is organized and delivered.
Visions of that shift in IT priorities spawned a development marathon during the past two years at McKesson Information Solutions, the vendor with the highest concentration of traditional financial and administrative applications in the healthcare industry but without a leading-edge array of clinical management products.
McKesson is now working to establish itself in the clinical area to meet demand from its more than 1,000 care-delivery customers and keep them from choosing competitors with more established clinical products (p. 34). The tactics have included purchasing and commercializing a physician-oriented system developed at Vanderbilt University Medical Center, a deal that will net the academic medical facility at least $20 million.
Graham King, who took over as president of the McKesson IT division in 1999, assigned 340 information professionals to the task of developing clinical-management systems, and the employee count in that area is slated to exceed 500 by year-end.
A top executive in the healthcare IT business since 1986, King says he's "never, ever seen a groundswell for a solution like we're seeing it today."
Other major healthcare IT companies with strengths outside the clinical management area are acquiring and developing their way into a market position as fast as they can.
Along with McKesson, the former Shared Medical Systems dominated the market for traditional healthcare information systems for decades. SMS, acquired in 2000 by Germany-based Siemens Medical Engineering Group, has collaborated with its parent to create a new set of applications designed to take inefficiency out of the healthcare delivery process systematically and automatically (p. 38).
Meanwhile, GE Medical Systems organized an information technologies unit to dive into the clinical-care support and re-engineering business, expanding from its base of experience supplying IT to the distribution of digitized diagnostic images (p. 40).
Those companies join a handful of vendors already offering a clinical line of systems, of which the most visible is Cerner Corp., Kansas City, Mo. Forced to hang tight waiting for the demand to develop, their new challenge is to maintain market position against the catch-up efforts of McKesson, Siemens and GE Medical while competing with each other for business.
Confronting clinical inefficiency
Part of the marketing task facing these companies will be to communicate the impact of their products on the business challenges of healthcare executives and how the solutions differ from those of the past.
Clinical information systems commit patient data to electronic form, but that's just the foundation for their management capabilities. Their broader purpose is to inject targeted and timely details at key decision points along the path of clinical diagnosis and treatment.
The information gathered and presented by these systems improves both the immediate ability of clinicians to provide effective care and the ongoing ability of managers to assess care processes and make them more cost-effective.
Until recently, leaders of healthcare organizations concentrated their efforts on other management objectives such as increasing reimbursement and trimming payroll. Providers have been reasonably effective in taking "head count" out of the system and otherwise reducing costs through assorted financial cutbacks, says Ohman of McKinsey.
But such actions largely skirt the issue of care management, attempting to bring budgets into balance by financial and administrative means without taking on the "staggering inefficiencies" of the clinical processes themselves, Ohman says.
Those clinical inefficiencies no longer can be ignored in the face of persistent and growing threats to organizations' financial health, Skinner says. "We just can't operate efficiently using the old processes. We don't have a choice but to redesign those clinical processes and support them with information technology."
That means scrutinizing the basis for hundreds of treatment activities and finding ways to guide clinicians toward best practices without slowing them down or presenting obstacles, says William Stead, M.D., who directs the medical information technology development effort at Vanderbilt.
"The healthcare system has difficulties that are primarily the result of the enormous variability in the way people practice and the inability to get information on how people should practice into practice," Stead says.
Only now are those difficulties worth the time and money to resolve, says Paul Taheri, M.D., chief of the trauma burn center at University of Michigan Hospitals and Health Centers, Ann Arbor.
"Five years ago things were still better than they are today from a reimbursement standpoint," says Taheri, who's also co-director of the university's Center for Healthcare Economics. Administrators presented with serious but not dire financial problems had been reluctant to take on the doctors practicing at the hospital. "It's easier to lay off a janitor," he says.
Now some of those doctors are in administration themselves, and many others are starting to see the point of working more cost-effectively instead of taking exception to attempts to change their existing practices, Taheri says. "There's not as much money in the system as before, so doctors are much more educated in the financial area of healthcare."
So the resistance to clinical-care management is starting to soften. But had attitudes changed a lot sooner, it wouldn't have done much good because the information systems necessary to drive fundamental process improvement were still at an early developmental stage, industry executives say.
"All of us have bought our share of vaporware in the past-we've heard it all, we've seen it all," Pepper says, using the derisive term for IT applications sold while still concepts in development rather than products proven in practice.
Technology catches up
Part of the problem, though, had to do with the limits of technology when it came to providing access to clinical information on the scale that healthcare institutions required. "It's got to be one of the most complex information management situations you can imagine," Pepper says.
At Providence Health System, information professionals have labored during the past eight years to build a "standardized, available, bulletproof set of information systems" and then to build clinical information depth and broad access on top of that foundation, Skinner says.
Despite the best efforts of both the information systems staff and vendor partners, "we have not been as successful as we've wanted to be," he says. The computer tools they had to work with, he explains, were just not powerful enough or useful enough to provide ease of use and satisfactory performance in clinical areas.
That was before advancements such as Internet technology, which greatly simplifies the assembly and delivery of information, and hardware improvements that have increased storage capacity in personal computers a hundred-fold in the past several years.
"Now the focus isn't on collecting and storing the data like before-it's on managing the data and creating knowledge from it," Pepper says.
Says Skinner, "The tools we have are demonstrably better than they were 10 years ago. It's a different world in terms of what we can do with technology."
The new and more flexible technology is being busily incorporated into the efforts of information systems companies to integrate the clinical and financial data pumped out continually in healthcare delivery organizations and to put the data to productive use. "Technology in and of itself is not the limiting factor," says Thomas Handler, M.D., a research director with Gartner's healthcare group and a specialist in issues surrounding computerization in care delivery.
A confluence of market factors
Despite the provider community's record of window shopping for clinical capability but not buying much, information technology vendors are counting on things to be different this time. "The move to clinical is real, and this time it will be sustained," says Richard Tarrant, chief executive of IDX Systems Corp., Burlington, Vt.
"We believe there will be continued interest and demand for these types of systems," adds Trace Devanny, president of Cerner.
Already the equation includes the need for a higher order of cost control along with IT sophistication equal to the task. But vendors and observers also see a powerful third impetus to prod healthcare leaders to action: the momentum building for proof of medical effectiveness, attention to caregiving quality and safeguards against medical errors.
"Quality of care is getting to be such a big deal," Ohman says. Not that it wasn't always, but now the term has a big question mark after it instead of an aura of assurance.
The 1999 report by the Institute of Medicine, To Err is Human, is turning out to be more than a passing storm in the healthcare industry, observers say. "I believe the Institute of Medicine has identified an issue of great interest to the American public," Devanny says.
Many of the medication issues laid out in that report were old news in the healthcare industry, having been raised in the relatively quiet realm of medical journals throughout the 1990s. But that was before the Internet brought medical knowledge to the fingertips of consumers and whetted their appetite for news about their personal healthcare.
That makes scrutiny of providers easier and in demand, especially for the baby boom generation. "They now have better information on hospital performances, and they use that to shop for their 'purchases,' if you will," says Shane O'Kelly, a McKinsey associate based in Atlanta.
That generation has "a level of expectations that will not be lessened by the fact that they will be the ones being taken care of by healthcare facilities," Devanny says, noting that 38 million Americans will be older than 65 by 2025.
The heightened concern about measuring up is borne out in the changing complexion of the IT buying process during the past year. Customers still place return on investment high on their lists, vendor executives say, but the quality spotlight is hot on their necks. And the heat is being felt by everyone from the board of trustees to physician leaders.
In a long meeting with one customer last month, "sixty percent of the conversation revolved around medical errors," says Wilson of Eclipsys. Besides the usual participation by the CIO, the gathering pulled in the CEO, chief medical officer and chief operating officer. "They're most concerned with the Institute of Medicine report," Wilson says of top officers, "because their boards are concerned about it."
Handler says he's been spending more of his time giving overviews of information technology to boards of healthcare institutions, something he did not see demand for until now. "The previous four years at Gartner I didn't do one of these presentations, and I've done three in the last three months," he told Eye on Info last month.
King of McKesson says he has talked to 40 provider CEOs in three months and all but one identified improved quality of care as an objective. As with other vendors, the meetings with provider leadership included the chief medical officer and other influential physicians. "That's different from anything I've ever seen," he says.
Pressure to prove quality
Besides mobilizing for medical safety initiatives, prospective IT buyers are looking for ways to quantify their quality improvement without having to go through medical charts manually, says Pamela Pure, McKesson's group president of development and support.
That addresses an impending need to satisfy the mushrooming reporting requirements of quality-oversight programs, whether from the Joint Commission on Accreditation of Healthcare Organizations, the National Committee for Quality Assurance, or the nation's major employers via an organization called the Leapfrog Group.
Leapfrog wants providers to implement physician decision support and computerized order entry, and its early efforts veiled a threat of contract consequences for noncompliance at some future date. But last month, Empire Blue Cross and Blue Shield, New York, in concert with four companies with membership in Leapfrog, dangled a carrot to encourage implementation of both physician order entry and the use of intensivists, another Leapfrog patient-safety standard.
Beginning Jan. 1, Empire will add a 4% bonus to its inpatient reimbursement to hospitals using both a computerized order-entry system and intensivists. The bonus will drop to 3% in 2003 and 2% in 2004.
External forces such as the JCAHO and Leapfrog are digging their heels in on medical quality improvement, boosted by public momentum for changes in healthcare delivery processes, says Judith Faulkner, president and CEO of Epic Systems Corp., a Madison, Wis.-based maker of clinical systems. "They haven't caused the change; they were a product of changes going on in the industry-and now they've become a catalyst for (further) change," she says.
Already the higher importance placed on documenting clinical decisions and results is putting computer-based order entry and other clinical IT in a different light, says Patricia Skarulis, vice president and CIO of Rush Presbyterian-St. Luke's Medical Center in Chicago.
After years of slow progress in implementing physician order entry and gaining acceptance for it at Rush, doctors in influential positions began to notice the higher quality of documents produced online compared with on paper, Skarulis says. The difference became clear during preparation for the hospital's most recent JCAHO accreditation survey.
Last February, a physician committee passed a resolution telling staff doctors that if computer order entry was available on a hospital unit, they must use it. "It was a groundswell, we didn't even ask for it," Skarulis says. "It came from the doctors themselves."
Timeline for new approaches
Amid the growing enthusiasm for clinically focused solutions to business problems, some observers are cautioning against expecting too much too soon.
At 3M Health Information Systems, Salt Lake City, clinical systems are generating "more prospects and volume than we have ever had in the past," says Vice President James Burgess. "That's a strong indicator, but people have got to buy it."
"It's great that they want to do these things," Handler says. "That's very different from a few years back." But the determining factors, he adds, will be how quickly provider organizations budget for new computer approaches and now quickly their leaders approve specific purchases.
The sheer expense and inevitable headaches involved in implementing such technology make progress a multiple-year proposition. And that doesn't even include the decisionmaking process.
The participation of boards and physicians is ultimately good for the prospects of selling clinical management systems, but the heavy involvement of clinical personnel can further stall a decision that already takes 12 to 18 months, says Karen Andrews, president of the application software division of Per-Se Technologies, Atlanta. "All of that protracts the sales cycle," she says.
And clinical systems aren't the only options for tackling the cash crunch in healthcare, says Tarrant of IDX, who sees "a clear resurgence of interest in improving the revenue cycle management process."
Despite the preoccupation up to now with generating revenue rather than containing clinical costs, many institutions haven't fine-tuned the process of capturing, coding, billing and contractually justifying the services they provide, thus failing to reap the maximum revenue to which they're entitled, Tarrant says. A recent IDX survey of providers turned up "more interest in revenue cycle management systems than in clinical systems, which blew me away," he says.
In comparisons with the product maturity of other industries, Gartner research concludes the computerization of healthcare has far to go despite the great progress made in clinical systems during the past few years. "We think the best of them may be at the halfway point," Handler says.
Regardless, the momentum is there to carve out room for computerization in healthcare.
"IT is being elevated as more of a strategic priority," says Ohman of McKinsey. The consulting firm's comprehensive interviews with 30 CIOs earlier this year established that IT budgets are grabbing a bigger share of the overall capital budget. "Instead of paving the parking lot, they're going to buy another IT system," he says.
Skinner of Providence Health says there is "a sea change in the belief of healthcare leaders that they're going to have to figure out how to use information technology."
A CEO of a midlevel facility "might not want to be No. 1 in this," he adds. But after five to 10 successes play out, "then those CEOs are going to say, 'This stuff works, a lot of people I know are doing it or thinking about it. Maybe that's something I ought to look into.' "