Healthcare News & Insights

Decrease spending: 5 areas healthcare facilities need to examine

92573134Over the past 10 years, healthcare spending rose the fastest last quarter. Part of that rise is because healthcare organizations are spending a lot on IT services and software – they might not need to. 

With the Affordable Care Act pushing hospitals to spend less, while increasing patient satisfaction it’s no wonder that a big part of the healthcare spending increase is due to technology. Expenses for health care rose at a 5.6% annual rate in the fourth quarter, the Bureau of Economic Analysis said last week. This accounted for nearly a quarter of the economy’s 2.6% annualized growth in the last three months of 2013, reported USA Today.

Driving the increase was an $8 billion rise in hospital revenue — more than the previous four quarters combined, according to the Census Bureau and Royal Bank of Scotland.

On average, healthcare firms spend more than other industries on IT systems, software and services, according to IT service provider NET(net). And compared to the lowest spending industry, food services, health care spends 33% more on technology.

Of course, a big chunk of that difference is simply due the importance of health IT — organizations are adopting electronic health records (EHRs) and other systems at a faster rate than organizations in other industries are installing technology. However, healthcare firms spend more on all areas of IT, including common items such as productivity software, storage, servers and networking equipment.

Some reasons for the extra spending are beyond organizations’ control — for example, the need to focus on patient safety instead of cutting costs. Also, laws and regulations prevent organizations from automating certain processes or doing other things that would enable them to implement technology less expensively.

Lowering spending

But there are some ways healthcare organizations can lower their IT spending and get more from their technology budgets.

Here are five reasons healthcare organizations spend too much on IT:

1. They don’t negotiate enough

While the number of for-profit health systems is increasing, many hospitals and other providers remain not-for-profit organizations. Therefore, they often face less pressure to cut costs than publicly traded companies in other industries. One side effect of that: Healthcare organizations tend to accept IT cost increases more easily and are less likely to negotiate lower prices.

Also, healthcare professionals work in a field where costs can’t be negotiated — patients can’t argue for a discount on the cost of a surgical procedure, for example. Therefore, that culture influences the way healthcare organizations make their own purchases, even though many could save money by negotiating with providers.

2. They don’t plan as diligently

For similar reasons, healthcare organizations often aren’t as diligent as other companies during the IT procurement process. A lot of healthcare purchasing involves commodities such as cotton balls, linen and other items. And many healthcare organizations, especially smaller physician practices, don’t have in-house IT expertise to drive an adjustment in approach when dealing with technology purchases.

That may lead to an assumption that IT equipment is priced in a similar fashion with no significant differences between suppliers. However, teams responsible for purchasing technology should use a different approach to find the right deal.

3. They get locked in with suppliers

More so than in many other industries, healthcare organizations often invest in vertically integrated systems from a single IT supplier. Often, organizations are told they need to purchase components that are certified to integrate with that system — i.e., they must be purchased from the same vendor.

However, those certification requirements often aren’t necessary and give the vendor too much control to keep prices inflated.

4. They use unnecessary industry-specific products

Many vendors market their products to specific industries, and that’s especially popular in health care. Of course, some software products such as EHRs are specific to the industry, but the same strategy is also used for servers, storage and other generic IT systems that are used by all organizations.

Often, the same components are used for healthcare-specific systems as those designed for any other industry — but with a higher price tag.

5. They purchase equipment for a single use

When healthcare organizations shop for technology, they often look for a single solution that provides all the necessary hardware, software and other components. That makes the purchase easier, but it often means the organization is spending more than it has to.

For example, the organization may end up with more infrastructure components, such as servers and storage, than it actually needs. This method of purchasing leads to many situations where, for example, each specialty area in a hospitals has its own servers even though that that infrastructure could be consolidated for cost savings.

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