Midsize health systems should not delay tech investments

By Dede Hartung, managing director, and Oliver Chu, senior manager, Deloitte Consulting LLP

Many midsize health systems were operating on razor-thin margins before the COVID-19 pandemic. Today, many budgets are being stretched further than ever, and financial leaders often have to prioritize their spending. Digital transformation (e.g., cloud storage and analytics, enterprise resource planning systems, artificial intelligence, and automation) can improve margins significantly. But midsize health systems often don’t have the budget for new technology.

About 75% of health system CFOs intend to decrease their operating spend this year—up substantially from 27% in 2021.¹ Many US health systems are still recovering from low patient volume and revenue shortfalls tied to the pandemic. They are also dealing with tight competition for talent, employee burnout, and higher supply costs due to surging inflation and shaky supply chains.² In addition, some health system leaders are navigating shifts in the sites of care (including virtual) and new reimbursement models. These financial headwinds could cause some organizations to further delay investments or cut staff to reduce expenses.

But by delaying or de-prioritizing technology investments, health systems continue to pour money into outdated and inefficient technologies, which could further postpone the return-on-investment once new technologies are implemented. If this technology debt is allowed to continue, health systems might need to make even deeper cuts in the future. Technology investments also have many non-financial benefits. These include improved data access, better real-time decision-making for patient care, and more secure infrastructure.

Consider this: A homeowner wants to add solar panels to the roof to help reduce electric bills. While solar energy can save money in the long run, the cost of buying and installing the panels might be cost prohibitive initially. Cutting other living expenses in the short term, such as streaming services or dining out, could free up money that can be invested in the solar panels. The homeowner can recoup the investment as utility bills decrease. Similarly, a strategy of continuous and sustainable process improvement could help health systems generate the capital they need to invest in technology.

Temporary pain, long-term gain

Some large health systems have already used cost-transformation savings to fund technology investments. But smaller hospitals and health systems are less likely than larger ones to have formal and successful cost-reduction programs. Exceptionally tight margins and inflation rates of between 10% and 25% could make it even more difficult for those organizations to implement a new program.³ But money saved through a cost-reduction strategy could be used to acquire technology that can reduce costs over the long-term. Cloud computing, for example, is used to securely store, manage, and process large amounts of data. Benefits include scalability, security, and the ability to access an ecosystem of capabilities to enhance EHRs, according to research conducted by the Deloitte Center for Health Solutions (see Preparing for the next generation of electronic health records). While most major health systems have already moved their IT systems to the cloud, many midsize organizations are just getting started. Although the transformation can be expensive and take several years to complete, the benefits can be significant.

Margin improvement and transformation is not always easy. Some of the most successful programs engage stakeholders to incorporate change programs that address clinician burnout. Given how much time clinicians spend updating EHRs, making that process more efficient is a critical lever to reduce the burden on clinicians. Deloitte recently surveyed 500 US frontline clinicians to understand the causes of clinician burnout and identify possible solutions. (See Addressing health care’s talent emergency.) Health systems that invest in new EHR technology, for example, can help reduce the time clinicians spend in front of screens and increase the time they spend with patients.

Case in point: An EHR optimization project at the US Department of Veteran Affairs allowed their primary care providers (PCPs) to see 18,000 more patients a week. The program reduced daily pop-up alerts by restricting EHR notifications to only those on a recommended evidence-based list. The program also included training for all PCPs on customizing and processing EHR notifications, further helping to reduce administrative burden.

The financial and non-financial dividends can be fruitful if such programs also free up capital that midsize health systems can invest in technology. To date, our health care clients have seen more than $3 billion in savings through margin-improvement strategies, allowing many of them to invest in forward-looking, technology-enabled solutions.

Conclusion

Many health systems are facing unprecedented financial challenges. An effective margin-improvement strategy could help midsize hospitals and health systems generate savings that can be used to invest in a technology enabled digital-transformation strategy, which could help reduce future costs and result in a leaner technology footprint and cost profile. Health systems that invest in digital technology will likely see expenses decrease as efficiencies improve.

Moreover, replacing outdated systems with digital technologies could help organizations attract and retain patients. Health care consumers are feeling the effects of inflation and may be more willing to switch care providers if they aren’t satisfied with the care they receive. More than 63% of consumers are willing to switch doctors if they don’t like the way their doctor communicates, according to the results of our latest consumer survey.

However, the longer health system leaders wait to invest, the longer it will likely take to realize the benefits from digital technologies. We are hopeful this blog inspires health system executives to pull margin-improvement levers and invest the savings into digital technology.

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Endnotes:

¹ How health systems can cut costs, drive revenue, and ensure sustainability, Healthcare Business Today, August 19, 2022

² Massive growth in expenses and rising inflation fuel continued financial challenges for America’s hospitals and health systems, American Hospital Association, April 4, 2022

³ Providers, insurers poised for 'bloody' negotiations amid inflation, Modern Healthcare, June 28, 2022

This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.

Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.

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