This is part one of a three-part series on the top issues faced by executive leaders involved in IT-enabled projects. Tough economic times call for serious thinking when it comes to IT spending. Dwindling reimbursements clash with ever-expanding demand for new spending. So what is a savvy CIO to do? Here are five lessons from the pros.

Tough Times Tip #1: Gain Leverage by Outsourcing

John Liston knows all about financial prudence. Serving as vice president of finance and CFO at 186-bed Port Huron (Mich.) Hospital, Liston must grapple with the reality of limited resources. The small community hospital lacks the resources of larger academic centers, and being independent, it has no corporate parent to turn to for additional capital. That's why, when it comes to spending on IT, Liston must maximize the bang for every buck. Even recruiting IT staff is a problem, he says, because of the limited opportunities the community hospital can offer its potential hires.The economic constraints led Port Huron to outsource its entire IT operation several years ago to Superior Consulting, now part of Affiliated Computer Services Inc. of Dallas. The hospital recently switched outsourcing partners, converting last fall to Troy, Mich.-based CareTech Solutions. Port Huron now pays CareTech $6 million annually to run its entire IT operation, including the data center. "It is virtually our entire IT operating budget," Liston says. In return for that, Liston is able to tap into CareTech's expertise, which he concedes far outstrips what the hospital could assemble on its own. "Being a small hospital, we don't have the economies of scale," he says. "They can offer the system redundancy and back-up we need at a better price."The outsourcer also negotiates IT contracts on behalf of Port Huron. "We don't have the leverage they do," Liston says. As far as capital budgets go, Port Huron has been spending ambitiously on developing an electronic health records platform.Using technology primarily from San Francisco-based McKesson Corp., the hospital has spent nearly $5 million to date. It has deployed systems that enable nursing documentation, admission-discharge-transfer planning and billing. Next will be an emergency department system and physician order entry.Port Huron faces two other large IT spends in the near-term. First, it will spend about $1.2 million on a picture archiving and communication system. Port Huron has winnowed down the list to two finalists and at press time was on track to pick a vendor early this year. Second, it needs to upgrade its 20-year-old phone system to a modern network that supports Voice over Internet Protocol, a project which will come in around $1 million, Liston says. Other needs that compete against IT projects loom on the horizon as well."We need to replace a patient tower and are looking to do that in the next five years," Liston says. "We want private rooms."The key to wise spending, Liston asserts, is benchmarking against other hospitals and what the industry is doing overall. That is one reason the hospital has invested so heavily in its EHR."We believe that we will be required by the federal government or Medicare to become more electronic," Liston says. "But with the tremendous cost of paper and record storage, a good IT system should pay for itself. But you can't afford everything at once. So you have to plan, plan, plan."

Tough Times Tip #2: Build It Yourself and Save

Evangelical Lutheran Good Samaritan Society began its EHR journey five years ago. Good Samaritan was looking to improve documentation across its 240 locations, which provide long-term care services, assisted living and senior housing in 23 states. In 2004, it deployed software that enabled caregivers to track resident activities. The system grew to include bedside assessments and nursing documentation.It's a common scenario - with one exception. The software is homegrown, says Rusty Williams, vice president of information services and chief financial officer. "It was more cost effective to build it ourselves," he says. "We looked at products and concluded that we could get more of what we needed if we took this approach. Commercial software would have cost in the millions."Good Samaritan maintains 87 IT staff and a $7.5 million annual I operating budget. In addition, it maintains an annual fixed capital budget of approximately $1 million to maintain its vast infrastructure, which includes a wide area network that spans 23 states. "Other major IT capital requests have to compete against other needs," Williams says. "The challenge in technology is that there are far more requests than resources. IT exists to enable others to be successful."Any capital request goes through a screening process, which includes a cost-benefit analysis. For example, Good Samaritan recently made a bulk purchase of nearly 4,000 hand-held devices from Newark, Ca.-based Socket Mobile Inc. The hand-helds will support point-of-care assessments done by nurses, who use the home-grown software. The investment in the hand-helds, Williams says, was justified by the impact the technology would have on clinical decision-making and care documentation. Rather than making notes on paper, and later transferring the information to a computer, caregivers can use the hand-helds while they make rounds. Another plus: that should provide more accurate capture of the work clinicians perform and thus support higher reimbursement.Williams won't disclose the cost of the hand-helds. But the price pales in comparison to other technology spends that linger on the horizon. "We are looking to complete our vision of the EHR," Williams says, referring to a more robust system that would incorporate medication administration and data exchange with the hospitals that refer patients to Good Samaritan. "It will be a significant capital expense," he says. "Our bedside assessment tool is just one piece."

Tough Times Tip #3: Develop Specialized Capital Approval Processes

Like most CFOs, Tony Herdener likes to run a tight financial ship. He's the vice president of systems and finance at Northeast Georgia Health System, a 2-hospital delivery system that serves 13 counties. In addition to his CFO duties, Herdener oversees the IT operations at Gainesville-based Northeast Georgia, which the community health system has outsourced to McKesson Corp., San Francisco. That puts him smack in the middle of capital budget requests, which are not easy to juggle in the current economic climate, he says. "Capital is scarce and hospitals have tremendous demand for it," Herdener says.To put some order into what can easily become chaos, Northeast Georgia has imposed what the CFO calls an "integrated financial planning process." The process standardizes how capital requests work their way through the delivery system, which has annual net revenue of $570 million. First, it categorizes requests in one of two big buckets. Some requests are considered "routine," meaning they are for smaller, one-time projects with short spending timeframes. Other bigger, long-term capital projects, such as building a new wing or implementing a new information system, are considered separately. On the big project side, it is spending some $40 million over five years on electronic health records technology from McKesson.Such major spending is a balancing act for Herdener. "We have the financial imperative to maintain our credit rating to enable us to tap the credit market," he says. "We also have to ask what are the requirements going forward to be a leading health care provider." That's one reason the health system is investing so heavily in IT Herdener says that the EHR "has skyrocketed as a benchmark of a quality organization. It enables you to reduce errors and introduce evidence-based medicine."But there are a multitude of other IT spending requests that work their way through the system's approval process. These one-time routine requests come through three teams. The teams cluster requests pertaining to IT, medical equipment, and construction projects. The three teams, which cover a representative cross-section of hospital divisions, may generate requests of $30 million annually. "They rank the requests blind of what is available in cash," Herdener says. Once the teams have ranked the requests in their respective areas, they dispatch the proposals to a capital oversight committee, which analyzes them and makes the final decisions to send to the hospital's board for approval. For routine requests, Northeast Georgia authorizes about $16 million annually across all areas.The capital committee also vets the long-term, big-ticket spending proposals. The committee includes the senior level executives of the health system. "Because these are multi-year spends, they have to be in context of our operating results, our borrowing, and our capital availability," Herdener says. Big-ticket spends also have upper-level backers. The chief medical officer, for instance, is the sponsor of the CPOE project. The CPOE project alone sports an $8 million price tag.But in any spending decision, a certain amount of horse-trading is inevitable, the CFO says. "A $600,000 request for extra storage may not be exciting, so you have to decide if it is more important than furniture or an extra monitor the anesthesiologists want."

Tough Times Tip #4: Get the Pain Over With-Quick

For the past five years, Hays (Kan.) Medical Center has avoided major IT capital investments. That's because of a strategic shift the independent rural hospital made. Faced with proliferating costs of maintaining a "best of breed" approach to information systems, the 192-bed community hospital shelled out $2.5 million for an integrated suite of applications, from Westwood, Mass.-based Meditech Inc.. "If we continued with the best-of-breed clinical approach, we knew it would be very expensive, long and involved," recalls Bill Overbey, who doubles as CFO/CIO. "We would be interfacing module after module and it could drag out forever."For its $2.5 million, Hays obtained the vendor's client/server package, which includes financial applications plus a host of clinical modules, such as nursing, lab, pharmacy, OR, and order entry. Overbey's financial calculus in making the switch proved accurate. "We have saved over $7 million over the last five years," he says. "We have lower maintenance costs, fewer staff, and less need to spend on best-of-breed applications. These are not just numbers I pulled out of the air."After converting to MediTech, Hays trimmed its IT staff from 45 to 19. It has added just a handful of people since then. Its old best-of-breed applications in such areas as OR and scheduling required specialists to maintain the systems. Meditech, however, is not able to meet all of the hospital's needs. For example, the hospital has added a picture archiving and communication system plus document imaging and management technology.Its current IT capital requests generally run about $500,000 annually, Overbey says, primarily for infrastructure improvements and storage expansion. That way IT - which Overbey says can easily become a financial "black hole" - does not over tax the community hospital, which typically runs at a 3% to 4% operating margin on net revenue of $150 million annually.To help maintain the positive cash flow, IT requests must compete with those from other departments. And when it comes to technology, Overbey says hospitals need to be choosy. "With the economy the way it is today, you need to hunker down and not be spending in an environment with a lot of risk. The economy has had a big impact on our thinking." For example, Hays recently deferred a request from physicians for a boutique cardiology PACS. The system would enable viewing of EKG results and include images from the cath lab and nuclear medicine, pulling everything together for cardiologists in one place. "We looked at the request from the administrative point of view and asked if it would impact care or be more of a convenience," Overbey says.The hospital decided to defer the $1.4 million purchase. "It did not have enough positive impact on patient care to move it up the priority list." In the meanwhile, Overbey's IT crew will devise some workarounds. The hospital, for instance, may interface its EKG machines to the Meditech system.Overbey encourages cash-strapped CIOs to consider one-stop shopping for their hospital information system. "Our success with a fully integrated vendor has limited our expenditures and gives us full clinical functionality," he says. "With best of breed, you open the check book and let the dollars flow out."

Tough Times Tip #5: Put IT to Work Planning the Budget

When it comes to capital investment, Sisters of Mercy Health System is in the big spender category. Of course, with 20 hospitals across four states, the Chesterfield, Mo.-based delivery system has plenty of reason to spend. The system's annual capital budget ranges from $350 million to $475 million across all areas, says Hector Boirie, chief capital management officer. And that's on top of a major IT initiative: Mercy is spending $500 million over five years on a clinical information system from Verona, Wis.-based Epic Systems Corp.The spending on the electronic health records is part of a strategic, enterprise-wide initiative, and as a result, "did not get approved in our conventional way," Boirie says. Other smaller capital requests are floated up from Mercy's local hospitals. If several hospitals are in a close proximity, they bundle requests together. Managing the capital budgetary requests falls on Boirie's department. It has standardized the process by using a financial planning tool - one it helped develop.Called "Spend Manager," the software is now sold commercially by Boston-based VFA Inc.The software routes capital requests to the appropriate people for review, Boirie says. The electronic platform enables Mercy to consolidate all capital requests and standardize its planning, discussion, approval and prioritization workflows, he adds. "If someone is asking for a technology that requires a change in the building, the request will go the design and construction people," he says. "The system also includes a requisitioning tool, which leads users through the necessary steps to buy something once the budget is approved."Standardizing the workflow around capital budget requests has enabled Mercy to fine-tune its approval process, Boirie says. "The system ensures the right people are looking at the request."

Tough Times Tip #6: Look Ahead for Hidden Costs

Like most physician group practices, Walnut Hill Obstetrics and Gynecology Associates, Dallas, must watch its pennies. Running a medical group is a costly undertaking, and Walnut Hill employs some 35 staff to support its seven physicians, who work at five sites. To streamline the exchange of data, Walnut Hill deployed an electronic health records system. It was a big step, and the practice had to spend about $75,000 on such hardware as tablet PCs, document scanners, insurance card readers and printers.The initial outlay would have been higher, however, had the practice opted to buy its software outright. Instead, it opted for a lease arrangement, in which it pays a monthly subscription fee to its vendor, Nashville, Tenn.-based DigiChart Inc. The vendor hosts the OB/GYN-specific system via the application service provider model. "The ASP made it easier to deploy," says Candy Bigham, practice administrator.The EHR technology contained one fiscal landmine. In order to have a complete chart for each visit, the practice scans in old records prior to a visit, appending them to the electronic file. Bigham says the scanning effort will likely take up to three years. "It represents an additional $40,000 in salaries per year," she says.Bigham's had experience with the remote hosting model. The group's practice management system, from Watertown, Mass.-based athenahealth Inc., runs on a similar arrangement, which has been in place for four years. The athenahealth system replaced a legacy system that was driven by keyboard commands, Bigham says. The practice could have purchased a practice management system for about $150,000.After doing a cost comparison, Bigham says the two methods of obtaining software would have been roughly equal in expense - borrowing costs included. The difference with the ASP approach, however, is that the monthly leasing fee includes upgrades to the technology. "If you buy the software outright, you will be finished with the cost, but technology changes and needs to be upgraded," she says. "It's like buying a car. You drive it off the lot and it is antiquated in two years."This article can also be found at

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