Chartis Group Leaders: It’s Time to Talk about IT Cost Rationalization

May 24, 2017
Parrish Aharam and Greg McGovern, principals in The Chartis Group, share their perspectives on some of the important—and challenging and complex—discussions taking place these days in c-suites around the topic of IT cost rationalization

Recently, Parrish Aharam and Greg McGovern of the Chicago-based Chartis Group spoke with Healthcare Informatics Editor-in-Chief Mark Hagland about the important topic of IT cost rationalization in patient care organizations. Aharam is a principal in the Informatics and Technology practice within The Chartis Group. He has almost 15 years of experience in consulting with a focus in both the provider and payor sides of healthcare. His range of experience includes large-scale IT implementation program management as well as strategy and planning initiatives and advisory service efforts. Before joining The Chartis Group, Aharam provided strategic IT consulting services with Deloitte Consulting, serving large, complex healthcare organizations. McGovern is also a principal with The Chartis Group. For more than 20 years, he has led and advised leading integrated delivery networks and hospitals. He has spent the last several years advising executive and IT leadership on the development and execution of IT strategy and performance to support organizational strategy and growth. Before joining The Chartis Group, Mr. McGovern was the chief technology officer at the Roseville, California-based Adventist Health, representing 20 hospitals and more than 5,000 providers. While at Adventist, he was responsible for designing and delivering an integrated clinical care network, and developing provider connectivity and eHealth strategies. Below are excerpts from that interview.

When you look at the subject of cost rationalization in healthcare IT right now, what does the overall landscape look like to you?

Parrish Aharam: This has been a really fun area for us to focus on, for a number of reasons. Essentially, what’s been driving a lot of this work is a few things. First, everybody went full-bore on their EHR [electronic health record] implementations. And now that those implementations are done, people are saying, ‘I thought those implementations would drive costs down, not raise them.’ And second, everyone’s really tightening their belts, based on reimbursement changes and market competition factors. At a high level, that’s why a lot of our work these days on IT planning is focused around cost reduction.

Parrish Aharam

Greg McGovern: And we always think, what is the headline in this? And ours would be around the IT investment paradox. We see the organization struggling with how they squeeze the costs down because of slowing reimbursement, and market factors, but at the same time, they’ve got this value-add, high-quality IT shop, and their work comes at a price. Still, the IT dollars stand out; so folks ask, how can you contribute? The conversation is switching. You start the conversation with the CFO saying, how many FTEs does it take to screw in this IT lightbulb? But you have to be careful not to cut off your nose to spite your face. And the analogy I like to use is that IT has become the fuel for a jet aircraft, not a car. So how many wings do I have on my plane? Because IT is fueling change now.

Here's an example. We had finished the implementation of one leading EHR, with a client; we had a great budget. And they asked, how come I still have these 100 IT folks still standing around who did the implementation? But the reality is that the organization needs a certain number of people to do the upgrades and maintenance. So the real effort now that we’re seeing is to sit down with the IT and the business together and figure out the actual need, and how to quantify that need in terms of FTEs and resources, and really get down to brass tacks as to what the training need is for the organization. That’s sort of the “Cadillac” question; but if we go to the “Chevy” version, you could increase physician dissatisfaction. And what are the means of delivering on the need? Is it a centralized IT capability? Or is it more through distribution of resources? And are there some service methodologies that we can use to tackle this program with, including self-learning apps? And make it a bit more self-service? A great concept, but what does that look like, and what will it cost? So the challenge is moving the discussion away from purely, ‘how many FTEs?’ as the question being asked.

Greg McGovern

So this needs to be a broad c-suite discussion rather than not a chop off heads discussion, right?

Aharam: Yes, that’s exactly right, and one of the reasons we keep getting called in for this. And many of the executives not on the IT side, they just don’t understand the total cost of adding a new application—the infrastructure, the support—so that’s one of the important aspects of this, explaining the infrastructure and the cost. And a lot of the times, the drivers of the cost come from the business.

So there’s a dynamic CFO-CIO discussion that has to occur, within the broader context of IT cost and resource utilization in patient care organizations, correct?

McGovern: Yes, but let’s move that dynamic a bit further. The gap that is there and that needs to be overcome is what’s needed is what we call enterprise IT governance. And that’s not the old IT governance of guys thinking up business strategy and then throwing it over the wall to the IT people. So it’s not enough if it’s just the CIO and CFO, but the CAO, the CEO, etc. What will it take to activate a strategy, and to get into an agreement that the business strategy is worth the cost? A lot of folks look at IT costs episodically. So it’s really important to look at ongoing organizational costs, so let’s make sure we can get there.

What are the smartest organizations doing on this journey?

Aharam: It does depend on the organization. I’ll give you an example of one organization that has really transformed how they think about spending from an IT perspective. Two years ago, this organization would approve every project and use consultants and contractors to get it done; there really was no filter. And the CEO last year said, this is all you’re going to get. And last year, they did what Greg just mentioned, enterprise IT governance, they implemented. So they looked at portfolios, such as an ambulatory IT portfolio, with x dollars and x human resources. They implemented it, and made it work.

McGovern: Parrish said it well. And it’s the same everywhere—I’ll counterbalance it with the question, what are the organizations not leading this transformation, but who are shooting themselves in the foot, doing? Those organizations that aren’t strategic are seeing disruptions and dissatisfaction, and having to revert and turn back. Parrish is right—every organization that we’re working with now is incorporating IT and understanding that it’s embedded in their business, and talking about IT as part of their business, not as a department anymore. But one key point that Parrish brought out is important, is this notion of an investment ceiling. So if we’re going to set cost controls, let’s do it at the highest level. So, here’s how much we’re willing to invest in ambulatory, because we have to set that amount aside for a physician investment, and that works so well.

What do CIOs need to do to understand this phenomenon?

Aharam: CIOs need to be transparent. They need to be transparent on what IT costs, and they need to make it clear what the implications are for a particular business decision. Too often, there isn’t enough good communication between and among the CEO, CFO, and CIO.

McGovern: I think that’s exactly right. And our message to CIOs who are still stuck on the other side of the divide, is that it’s really true that the CIO is stuck until he brings himself up in his own education to realize where he needs to be, and then he needs to work with his team. We are generally brought in from the CXO level, and handed over to the CIO. So one of the things the CIO can do is to start modeling his behavior and for his team. CIOs need to be part of working through the problem and finding a solution. Really, the CIO needs to model transparency, and stop the divide. But the CFO needs coaching as well; the CFO really needs to be saying, CIO, I need you to come over here, and let’s talk turkey. I don’t just want to tell you to do, I need your help. So there needs to be a bridging of the gap; the two need to pursue each other, until they’re wedded at the hip.

When the CIO is at the true c-suite level, that’s when some of this happens, correct?

McGovern: Yes; it’s time for the CIO to speak a different language. It’s not about telling the c-suite about blockchain. So it’s language, absolutely.

Given that the landscape of the future will involved straitened reimbursement and restricted resources, how will CIOs and other healthcare leaders be able to optimize and maximize the resources available to them?

McGovern: This is why benchmarking—not just IT benchmarking, but business benchmarking—is so important, and so important to talk about together, in all of this. For example, you need to look at the organization’s operating revenue increase, year over year. Is it going up 6 percent a year? What about IT organizational expense? Is that going up at the same level? And when the organization realizes and is budgeting for a shortfall in revenue year over year, and they’re seeing a 0.1-percent increase in revenue, can you stay in line with that? You need to figure out how to keep the IT expense in line with that.

Aharam: You summed it up very well, Greg. Per your question, Mark, I think the days of handing out multimillion-dollar capital to IT year after year, that’s done. Over the next five years, the majority of health systems will see a slowdown in IT capital expenditures, and will be looking at how to economize, for the next five years.