Are Budgets Thawing?

Harry Greenspun

Despite the flurry of activity surrounding the HITECH Act, some hospital CIOs look back on 2009 as a difficult year in which they faced budget and staff cuts.

“Many hospitals froze most discretionary spending and froze hiring,” says Harry Greenspun, M.D., chief medical officer of Dell Perot Systems. “They were cutting costs everywhere.”

With the economy showing some signs of improvement, we asked CIOs and analysts whether the outlook for 2010 hospital IT budgets is any better.

John-David Lovelock

This recession was an exception to the rule that healthcare is less disrupted by economic downturns than other sectors of the economy. Besides their own stock market portfolios taking a hit, hospitals saw charitable giving drop off and had difficulty raising money on the bond market. Many hospitals had access-to-capital and line-of-credit issues, which made cash flow most CFOs' primary concern. For that reason, many IT projects, especially those that wouldn't show a speedy return on investment, were put on hold or scaled back.

Research from Gartner shows worldwide health IT spending fell from $85 billion in 2008 to $79.8 billion in 2009.

Drex DeFord

Although things are looking up slightly for 2010, the growth is likely to be somewhat anemic. Projections are that those numbers will rebound slightly to $82.2 billion in 2010, but the growth in the U.S. market will be slower, at about 1.5 percent, says John-David Lovelock, a research vice president in Gartner's Technology and Service Provider Research group.

More of the same?

For many CIOs, 2010 may feel a lot like 2009. Hospitals will not see much of a thaw in the bond market or donations, and will continue to be very cautious on IT investments. “We are seeing growth in IT outsourcing and business process outsourcing,” Lovelock says, “but unfortunately staff spending will continue to decrease, down 0.9 percent, and hardware spending is expected to fall 4.4 percent.”

With meaningful use still being defined and healthcare reform legislation in the works, many healthcare CIOs began 2010 in wait-and-see mode, Lovelock adds.

Drex DeFord, CIO of 250-bed Seattle Children's Hospital, senses a shift from economic crisis mode to a fear of the unknown associated with coming healthcare reform. As a result, he says, many CFOs are holding the lines on budgets, both capital and operating.

“While no one likes to have restricted budgets, the fiscal discipline that comes with it is, in my opinion, a good thing,” DeFord says. He believes it makes the hospital prioritize more effectively and brings the leadership team closer together. “We've continued to sharpen our focus on our patients and families and what they need for improved care, he adds. “If we can continue to maintain this discipline, even as the economy improves and budgets loosen a tiny bit, we'll be in a much better position when the next downturn comes along.”

Other CIOs who exercised caution in 2009 also see signs of promise.

“I am so excited about this year. Our situation is definitely improving,” says Jamie Mooney, CIO of 328-bed Norwalk Hospital in Fairfield County, Conn. “Because we watched financial metrics closely last year and we delayed some projects, the hospital actually had a pretty good year fiscally despite the economy,” she says. “Now we are in a much stronger position and able to do some projects.”

Norwalk, which has made great strides with CPOE, is moving full steam ahead on nursing documentation this year, Mooney says. She also is rolling out a disaster recovery plan that has been in the works for a couple of years, including the remote hosting of clinical applications with Cerner.

At 581-bed University Hospital in Augusta, Ga., there is no capital set aside for information technology. Each year, IT projects must compete with other investments. But having hospital financial executives who understand the critical importance of IT investments has improved the outlook for 2010, says William Colbert, vice president and CIO. “Our overall capital budget actually looks worse for 2010 than it did for 2009, but our chief operating officer knows that because of the stimulus funding and other issues, we have to place a priority on several IT projects,” he says. “We are working on physician documentation and had already made a decision to invest in a new McKesson revenue management system.”

Healthcare consultant Allan DeKaye has seen an increase in financing options that avoid large upfront capital expenditures, such as leasing, software as a service, and remote hosting of applications. DeKaye, president and CEO of Oceanside, N.Y.-based DeKaye Consulting Inc., adds that projects that hospital CIOs have been putting off, such as the integration of clinical and financial systems, may not be postponed much longer. “There is pent-up demand,” he says, “and if they can get capital budgets unfrozen, they will move ahead.”

The HITECH Act's passage had the unintended consequence of making many hospitals hold off or scale back clinical projects in 2009 to determine whether they should pursue bonus payments for meaningful users of EHRs. Many of those hospitals are now moving ahead.

“Both because they wanted some more specificity and also because of the economic shock, there was a real pause in spending on either clinical or non-clinical things,” Greenspun says. “Now that is breaking loose. People feel more confident about what the meaningful use will mean to them and they are moving forward on those. And some are starting to see a financial recovery.”