Senior healthcare executives are buying the arguments for using computer power to make patient care more effective and efficient.
They're buying into the notion that clinical information systems and easy exchanges of data with physicians can take chunks of cost out of care processes that account for much of the expense in healthcare operations.
They're just not ready to buy the software products and information technology to make all that possible.
Although pressured more than ever to contain or reduce operating expenses, the house-poor healthcare industry generally is short the cash to furnish patient-care settings with computerized management systems that could bring expenses under control.
Many healthcare organizations are taking in hundreds of millions of dollars in annual revenue but are "operating at a loss or at a thin margin, so they don't have money to reinvest," says Scott Werkstell, a Tampa, Fla.-based director in the healthcare information technology group of PricewaterhouseCoopers.
The gap between what healthcare executives clearly want from IT and what they are willing to spend on it is the dominant finding in Modern Healthcare's 12th annual survey of information system trends. The survey polled 255 healthcare providers, both single-hospital organizations and multiple-facility systems.
The previous three surveys identified much the same paradox of strong preferences for clinically oriented information enhancements coupled with limited resolve to budget for them.
But never has the conflict been this stark, says Tim Zinn, president of Zinn Enterprises, a Rancho Santa Fe, Calif.-based healthcare information technology consulting firm.
"They're not spending money on anything," Zinn says. "They've got their eye on the right ball, but they just can't take action."
Furious efforts by healthcare software vendors are yielding advanced systems to automate medical records, introduce pertinent information about patients when doctors order drugs or treatments online, and remove steps and unproductive waiting from diagnosis and treatment processes. Providers that made multimillion-dollar investments and weathered substantial operational changes are reporting significant returns (Nov. 12, 2001, p. 22).
The glare of scrutiny from purchasers of healthcare and the general public also has boosted the profile of clinical-care management systems. Two Institute of Medicine reports in the past two years rained publicity about medical errors and patient-care shortcomings. Meanwhile, a business coalition called the Leapfrog Group has agitated for acceptance of computerized physician order-entry systems combined with alerts about potential drug interactions.
Despite the carrot-and-stick argument for investing more in IT solutions, surveyed organizations plan to spend no more of their total operating budgets on information systems than they have for the past four years: an average of less than 2.6%.
Capital expenses are projected to rise 7% on average, compared with 8% last year and 7% two years ago in the depressed aftermath of a Y2K spending bulge. From 1995 to 1998, capital-expense levels had increased between 9.5% and 11%.
Projected levels of operating expenses attributed to IT continued a slide that began in 1999. The average increase of 5.6% is the same as last year's all-time low. The average operating increase for IT had ranged from 7.4% to 9.6% from 1994 to 1998 before dipping to 6.9% in 1999 and 6.1% in 2000.
Response from top execs
Opinions on trends explored in the survey, sponsored by PricewaterhouseCoopers and Zinn Enterprises, were those of senior managers of healthcare-delivery systems. Questionnaires mailed out in September were accepted from respondents through December.
Of the executives responding to the survey, 24% were chief executive officers or administrators, and 25% were chief operating officers or chief financial officers. Chief information officers and directors of information services constituted 34% of the sample, and the remaining respondents held other management titles, such as chief medical officer or chief nursing officer.
Single-hospital and multiple-hospital organizations each accounted for 50% of the sample. Single facilities averaged 336 beds, and each multiple-facility system averaged seven hospitals.
In all, the survey represented 985 hospitals with a total of just under 170,000 beds. Stand-alone hospitals averaged $230 million in annual revenue; multiple-facility systems averaged $485 million.
Healthcare's twin tests
The influence of outside pressures on the healthcare industry pushed regulatory changes and patient-care considerations to the top of this year's list of IT priorities for the next two years.
Demands brought on by the Health Insurance Portability and Accountability Act of 1996 became the top priority, completing a steady climb from second last year and fourth in 2000 (See chart, p. 57).
Right behind the HIPAA imperative was the need to improve patient-care capabilities, rising significantly from fifth-highest a year ago.
Most respondents committed themselves on IT priorities before President Bush signed legislation extending the statutory deadline for complying with HIPAA regulations that require healthcare organizations to send electronic claims information in national-standard formats. The compliance deadline had been October of this year.
But the new law grants a year's extension on that deadline only if providers and other healthcare organizations petition for the extra time and lay out a definite path to compliance by October 2003. And it holds them to a commitment to be ready to test their standard-transmission capabilities by April 2003 (Jan. 7, p. 22).
Congressional sponsors pointedly clarified that they wanted to keep healthcare organizations from allowing the march to compliance to slip lower on their to-do lists. Further, the sponsors declared their opposition to extending deadlines for another elaborate set of regulations governing privacy of patient information. Compliance with those rules is required by April 2003.
Aside from regulatory concerns, respondents have homed in on clinical process efficiency. Healthcare industry interest in patient-care enhancements is bolstered by nearly equal interest in improving decision support for clinicians and increasing productivity while reducing costs. Those priorities have held their places for the past three years.
By contrast, infatuation with emerging technologies such as the Internet appears to have run its course. The top IT priority in 2001 and 2000, emerging technologies faded to fifth this year.
The same concerns about HIPAA and patient-care improvement carried over into general priorities for developing integrated delivery systems, but with stronger emphasis on patient care than last year.
Clinical information systems led the list for the fourth consecutive year, gathering support from 71% of responding organizations-up from last year's already strong 65%. Close behind for the third year was the need for clinical communication and links to physicians. HIPAA requirements rounded out the top three (See chart, p. 58).
But when asked about their progress in implementing specific information technology projects, respondents steered away from committing to a start date within the next year.
A pioneering minority already is operating or actively implementing clinical computerization and technical features that automate workflow. Conversely, the contingent of organizations sitting out the campaign to improve IT represents 15% or less of the sample in these project areas.
But 20% to 30% of those planning to add such capacity do not have a timetable to begin (See chart, p. 59).
For example, only 11% say they're not planning any projects involving clinical enhancement of decision support with alerts for drug interactions. But 29% have gone no further than planning.
Just 14% don't see point-of-care data collection and retrieval devices in their future, but 30% can't say when they will add them.
Only 15% say they're not contemplating workflow automation, but 30% are in the barest of planning stages.
Among projects anticipated to start within a year, the most often mentioned is clinical-decision support, declared by 23%. The next two are projects involving point-of-care devices, 19%, and electronic transfer of diagnostic images, also 19%.
Forced into a waiting game
The findings show that healthcare executives understand the promise of value in clinical-care management information systems, Werkstell says. "Unfortunately, a lot of them haven't figured out how they're going to pay for it," he says.
In an industry that's conservative and risk-averse, fiscal officers do not have much leeway to finance pricey projects. "They're dealing with no money," Werkstell says. "Nobody wants to pay more for healthcare, and doctors and hospitals are the ones getting squeezed."
Some of PricewaterhouseCoopers' client provider organizations have been "charged up" about the potential for return on investment presented by clinical-care information systems, "but that still doesn't give you the money upfront to pay for it," Werkstell says. The enthusiasm among managers and executives would come to an abrupt halt when plans reached the board level.
When it comes to committing money for information systems, the weighted-average percentage of the total operating budget devoted to information systems stands at 2.56% in this year's survey, a grudging uptick from 2.53% last year.
Respondents chose from more than a dozen spending ranges, from flat budgets to increases of more than 6%. Similar ranges were proposed for capital and direct operating expenses. Weighted averages were calculated by multiplying the midpoint of each spending range by the percentage of respondents selecting each range.
One-third of surveyed organizations allocated 2% or less of their total operating budget to information systems (See chart, p. 60). That's an improvement from a year ago, when nearly 40% said they would spend in that range.
More than half the organizations ranked their spending level between 2% and 3.5%, an increase of 11 percentage points compared with 2001. But the percentage of spending higher than that stayed the same at about 14%.
In capital allocations, the percentage of big spenders is down slightly from last year, with 19% of respondents planning increases of more than 10% compared with 22% in 2001 (See chart, p. 60). More than 40% are forecasting increases of less than 5%, compared with 30% selecting that range a year ago.
Projections of operating expenses also were concentrated more highly at lower levels. Nearly four in five organizations forecast an increase of 10% or less in direct operating expenses, with 52% projecting an increase of less than 5% compared with 47% last year (See chart, p. 62).
Among the challenges for consulting firms and vendors of healthcare software will be showing providers how to get more out of their investment dollar for information systems, Werkstell says.
One way is to demonstrate how to take advantage of historically low interest rates and either borrow for new projects under attractive terms or refinance current debt to free up additional cash, he says.
Providers also are looking for incremental investment in technology with immediate returns, which can validate the investment and provide savings to plow into further technology enhancements, Werkstell adds.
Cash shortages are not the only barriers to investment in clinical-care management systems, however. Executives also worry about the effects of extensive training requirements on a low-margin business, and some remain wary of chancing a largely unproven product.
"Right now, risk is not where it's at," Zinn says. "It's staying with your knitting."
Although vendors have been pushing for acceptance of their cutting-edge software, they haven't provided a sufficient comfort level to conservative executives for whom clinical products "haven't matured to the point where some of the institutions are willing to pull the trigger on them," Werkstell says.
Once past that concern, fiscal officers can be hesitant to risk disruption to an operation barely breaking even. That's the likely result of the process changes and clinician training involved in implementing such systems, he adds. "When you train them, you're not making money with them."
Costs also can escalate during months of training and implementation. Nursing floors already are chronically understaffed, and hospitals need to increase staff to handle the daily workload.
The dilemma is that to attain the long-term efficiency and improvements in cash capture provided by IT innovations, organizations have to endure the opposite effect on their operations in the short term, Werkstell says.
In addition, providers have to contend with changes in processes required by the impending HIPAA regulations, which represent a definite near-term cost and mandatory re-engineering challenge in contrast to the more elective costs of clinical information systems.
The confluence of challenges can create enough obstacles to retard progress. "Not any one is a deal-breaker, but when you add them all up, it supports the decision to wait," Werkstell says.
Getting every last dollar of value
In the meantime, "our clients are looking to use the systems that they have better," says Steven Roth, a Florham Park, N.J.-based principal with the healthcare consulting practice of PricewaterhouseCoopers.
"Even though they know in the long run they'll save money (on innovative new products), they're holding themselves together with the old technology for now," Roth says.
That trend is strongly confirmed by respondents when asked how they intend to deal with higher expectations for information technology when there's less money to devote to it.
Although they've put another year behind them since the Y2K investment crisis, three in four organizations still are not inclined to readjust their spending in other areas of healthcare operations to provide more money for information systems (See chart, p. 62).
A majority would rather readjust their expectations for IT than their spending, using current systems more efficiently and aligning processes to better fit existing systems-no different from a year ago.
That explains, for example, a surge of activity in implementation of workflow automation, Roth says. Only 8% of respondents reported having such a capacity, but a third are in mid-implementation.
Business-side systems installed to beat the Y2K deadline typically included workflow automation capabilities, but provider organizations were mainly interested in launching the basic back-office and general accounting functions such as automation of accounts payable and procurement, he says.
It takes more time and effort to trigger the automatic monitoring of task completion and handoffs of tasks throughout the organization, and managers likely held off until they could justify the extra work, Roth says.
That came when anticipated cost reductions from the new systems weren't being realized. The reason: Providers were not getting the benefits of less manual intervention in business operations afforded by implementing the higher level of automation.
Healthcare organizations also are making the most of existing clinical and financial information sources to construct data repositories that help spot trends and improve decisionmaking, Werkstell says.
A third of responding organizations have such a capacity, and 22% are working to implement it. Another 13% plan to start implementation within a year.
Information professionals can take data from billing, laboratory, radiology, pharmacy and other systems and sort through the readings for retrospective analysis. This allows providers to do more with what they have and show something for the effort in short order, Werkstell says.
Some initiatives to improve the use of existing systems eventually could lead to plans for the type of clinical upgrades envisioned by healthcare executives.
Many pharmacy systems, for example, have the capacity to convert information on drug orders to medication interaction and dosing alerts once clinical rules are programmed into the system. That puts the pharmacist on the firing line to monitor alerts as they occur and communicate with doctors.
At some point, a provider organization could see the benefit of tying that reporting into the order-entry process, alerting physicians early on, Werkstell says.
From there, the next step is an investment in a wireless communication infrastructure to put that information on physicians' handheld computers, he says.
"It's a stepping-stone approach," he says. "Most are at the pharmacy level with a plan to upgrade to the order and handheld areas."
Moving beyond the status quo
Bite-size progress on tight budgets can yield some economies of scale and value for the money already invested in IT, but it won't put healthcare organizations in substantially better positions to operate more efficiently, Zinn says. "They're not going to be able to continue in this slow malaise," he says.
"You get to a point where you can't do more with less," Werkstell says. Although managers can show results from incremental successes, "eventually they'll have to go to the next step."
But as long as the investment is steep and the cash flow flat, conditions won't be favorable. Something has to change, and Werkstell points to the eventual cost-reduction potential of HIPAA-related changes as a possible springboard.
First comes the investment in making those changes, with privacy regulations now representing the earliest deadline. Closely allied with that challenge are pending requirements to secure patient information when exchanged or stored in electronic form.
The final regulations on security rules were expected by the end of 2001, but they were not issued. However, much of the anticipated work is a matter of following industry best practices, and not many providers have identified the scope of work that is necessary within their organizations.
Presented with a continuum of readiness for the security aspects of HIPAA compliance, 18% of surveyed organizations are beyond the assessment stage, compared with 16% a year ago (See chart, p. 64). "Nobody is really focused on remediation," Roth says. Security policies, procedures and technologies were in place at 5% of responding organizations.
The most progress from a year ago has occurred at the preliminary stage of assessing internal organizational compliance, selected by 22% of respondents compared with 11% in 2001.
With more healthcare providers moving out of the assessment stage in the security aspects and other categories of HIPAA compliance, total costs of compliance will become clearer this year, he adds. That could break the budget logjam for information systems and give a clear picture of what's left for spending on projects other than HIPAA compliance.
A notable number of organizations already are pressing ahead with transmission of healthcare claims and related transactions through Web-facilitated electronic data exchanges, which the recently extended HIPAA rules on standard transactions are intended to foster.
Asked about their degree of success using the Web for eight basic organizational objectives, nearly two-thirds of respondents report they're communicating with payers (See chart, p. 64). Just 9% were using the Web heavily with good results in payer exchanges, but that was higher than the percentage for any other objective. About one in four organizations reported using payer communication satisfactorily, and 30% were using it but planned improvements-both also leading those categories.
Among Web activities that can help restructure the hospital-physician relationship, claims resolution and eligibility for insurance coverage improved one place from last year, to third in priority (See chart, p. 66). Heading that list for the second consecutive year was the potential for easier physician ordering and access to results.
But as in other IT areas, the implementation commitments lag far behind the stated priorities-44% of respondents say they are planning to use the Web to establish communication with physicians but haven't started yet.
Among other approaches to move IT improvement along, the strategy of using an outside contractor to manage some or all of an organization's information systems attracted only a smattering of interest or acceptance.
Plans to "outsource" all information systems declined further from last year's anemic levels. More than 80% say they have no plans to consider it, and only 11% report signing a contract or intending to do so (See chart, p. 68).
And 80% of respondents show no interest in outsourcing clinical information systems and services, up from 73% last year.
Healthcare executives offered less resistance to outsourcing in technical areas, such as network management and PC deployment. About 30% say they have committed to contract those services or are willing to consider it.
Overall, executives remain skeptical that contractual benefits will be realized or that they will be able to establish measures meaningful enough to ensure the outsourcing vendor's performance (See chart, p. 70).