D'Arcy Gue

The Reality of Health Care IT Value

July 9, 2014

Healthcare IT 5 Minute Read

Everyone connected to the health care industry understands the challenging landscape that faces hospitals today. Nearly two thirds of the 5,500 acute care hospitals in the US are losing money, and costs continue to rise. In information technology, the reality is stark. The demands for more and more IT capabilities are rising, with Meaningful Use / MIPS and ICD-10 leading the way. This year, according to John Halamka, MD, CIO at Beth Israel Deaconess Medical Center, is all about survival.

The affordable care act has provided significant incentives for the implementation of medical records, and is one of the most meaningful drivers of health care IT investments today. Unfortunately, the incentives don’t cover the costs for most hospitals to implement compliant systems. Even that funding will dry up for most hospitals soon, with the expectation that phase three will be even more work, with no incentives to support the cost. ICD-10 was even more problematic, with no reimbursement for the work done to date, or still to be done in the next year.

Another external pressure that’s critical to the survival of any hospital is the transition to more and more value-driven care. This isn’t new, of course – the advent of DRGs as a key component of hospital reimbursement started in 1982. Today, however, the pressure is even more acute. Hospitals are struggling to keep up with the impacts of realities such as:

  • Accountable care organizations,
  • Value-based purchasing,
  • Meaningful Use / MIPS stage 3 focus on outcomes,
  • Population health, and
  • Commercial contracts being based on DRGs, bonuses, and financial incentives.

All of this leads to one inescapable conclusion – health care is becoming outcome and value-based instead of fee for service-based. The only path to maintaining a viable health care organization is your ability to produce value.

So what does all of this focus on value mean for the hospital IT department? The government, payers, hospitals, and indeed the entire industry has doubled down on two concepts to improve the value of health care:

reduce costs and improve care

At this year’s HFMA Annual National Institute, this message couldn’t have been more clear – reducing cost and improving quality are the two most important mandates in health care today.

What is Value?

Value, in its most generic sense, is a measure of what you get divided by what you pay. From a health care IT perspective, it’s represented like this:

equation for value

The better care we can produce, the more value. The less we spend doing it, the more value. The relevance factor reflects the fact that not all activity produces the same value to the business. For example, it doesn’t matter how good and cheap a physician billing system is, if the facility doesn’t bill for any physicians.

From a value perspective, there are three things that the IT department can do to make sure that the hospital receives the best possible return on investment for the three to four percent of the overall budget that’s allocated to IT:

  1. Invest in the right projects – take on projects that are consistent with the organization’s overall business strategies
  2. Improve quality, both in terms of the IT service provided and in terms of overall patient quality
  3. Spend as little as possible while doing items one and two

IT Value in 2014

In 2014, most hospital IT departments are in very similar situations:

Most hospitals have recently made significant investments of time and money to install and employ electronic medical records systems. In most cases, physicians still aren’t happy with the systems – 20 percent want to go back to paper, and a significant number believe that the hospital should have a different EMR. According to a survey from the American College of Physicians, conducted in 2013, 34 percent of users were “very dissatisfied” with the ability of their EMR to decrease workload. In most cases, these EMRs were installed fairly rapidly, with far more attention being paid to the deadlines and standards of Meaningful Use / MIPS than to the ways to use the systems to impact the cost and quality of care.

Most hospitals have made significant investments of time and money to install new or remediate older revenue cycle systems and business processes in preparation for ICD-10. In most cases, hospitals have focused on remediation of existing processes, and not with ways to use the ICD-10 transition to improve care.

Most hospitals have had to eliminate all non-critical projects in 2014 to achieve these first two objectives.

How Should Hospital Leadership Proceed?

From a business perspective, the critical task is to maximize the value of technology investments so material improvements in health care cost and quality can be realized. In most cases, the most compelling strategy to quickly impact the value equation in a significant way is to amplify the value of information technology through a group of processes that Phoenix refers to as optimization.

Through the optimization process, the hospital takes an analytic approach to answering one or more of four basic questions, and using those answers to identify high-value targets for improvements to patient care, IT services, cash flow, and overall IT spend. The four questions are:

  1. Is the organization spending IT dollars wisely, or are there ways to reduce the IT spend without negatively impacting quality of services and care?
  2. Are the systems that make up your portfolio the right ones, and are you using them in ways to maximize the value?
  3. Are IT services supporting the users and the organization in effective ways?
  4. How are the investments the organization has made in IT affecting the most important business objectives of the hospital?

hospital optimization areas


In the coming weeks, we will explore value and drill into each of these opportunities, outlining specific strategies for each area of optimization.

We’d love to hear from you. What are the most difficult challenges you face when trying to maximize the value of your IT investments and how do you address those challenges?

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