Healthcare organizations pay more for all types of technology from Lawson financial applications, Microsoft desktop productivity licenses, Cisco networking equipment, IBM servers, to EMC storage arrays and so on. These overpayments extend to the vertical applications for healthcare like those provided by Epic, McKesson, Cerner and others. Presented below are the top three reasons we believe healthcare providers pay too much for IT.
1. Healthcare organizations focus on patient care and safety
When it comes to investments in information technology for healthcare, there is a lot on the line. Produce the wrong information and a patient may have the wrong leg amputated; dispense the wrong medicine and someone could have an allergic reaction; conduct the wrong procedure and someone dies. Therefore, most healthcare initiatives focus on improving patient care and mitigating risk. The priority is to get the right information to the right clinicians in the most convenient manner possible, within all regulations and policy parameters. Healthcare organizations require extremely high performance and reliability for the equipment and software of the information systems. As a result, the total costs of these initiatives often pale in comparison to the potential liability of a wrongful death lawsuit.
Clients easily justify these types of investments. If the justification is high, there is less focus on the costs. We see organizations in the healthcare industry paying significantly more for technology than other industries. Big monetary justifications and a strong focus away from the market value of the technology towards the organizational value to improve patient care, enable technology suppliers to charge significantly more to healthcare organizations.
2. Healthcare organizations often lack a profit motive
While an increasing number of providers are for-profit, many healthcare providers remain non-profit organizations. Regardless, most, if not all healthcare organizations now focus on revenue generation. The requirement for financial performance in quarterly business cycles, often seen in traditional publicly traded organizations, can be less intense.
Most healthcare organizations believe they are cost conscious. The reality is that when technology costs go up, healthcare providers usually just factor increases in technology costs into the total costs of service without much of an awareness of other, less costly methods to achieve the same result. Without the profit motive, the measurement of success is often different. In comparison to for-profit business, another dollar of profit might equal another ten dollars of market capitalization value, and that will likely translate to an increase in stock price. Financial executives keenly focus on these areas in for-profit business and much less so in healthcare.
Healthcare organizations do not often view significant investments in technology as a competing value to an in-quarter financial target and therefore are often more willing to make those investments as opposed to for-profit companies that may delay or even eliminate technology projects for the sake of making their quarterly goals. In addition, with multiple parties and constituents involved in making decisions, the alignment to financial concerns is often a secondary, if not an outright tertiary, objective. In these organizations, few if any members of the management team are directly accountable for optimizing costs.
3. Healthcare organizations don’t always negotiate diligently
In acute times of need, when you go to your physician, your physician generally treats you pervasively. Due to the professional nature of physicians in the first place, plus the potential for exposure to increased liabilities due to malpractice claims, physicians generally evaluate and treat you broadly, order comprehensive tests on expensive machinery, and otherwise design and architect a plan for your complete care. Other than the occasional decision between a generic or a branded drug, there is not much room for negotiation. As an example, we do not know of many who have successfully negotiated down the cost of an MRI, let alone whether or not an MRI was the appropriate test, or whether or not the organization needed an MRI in the first place. In fact, healthcare providers delegate this “negotiation” function to their insurance companies. As much as this insurance driven model creates issues, there is no doubt that the payors have driven a certain level of cost efficiency.
In addition, physicians want to be viewed as the experts, so when they are assessing your needs, they do not often engage in a negotiation on the solution of your care, let alone on its associated cost. This culture permeates the healthcare industry. Healthcare organizations view costs largely as a product of the solution, and added into the total consideration without as much as a second thought. This culture of trusting the experts for a solution extends to IT. An all-too-frequent scenario is:
- Healthcare organizations bring in outside experts who tell them what kind of technology solutions they need and then work with suppliers to review those requirements.
- They then purchase what they believe they need, without awareness of the actual market price of the proposed technology solutions specific to their environment.
- They do not have the knowledge of other configurations or optimizations to produce an equal or greater organizational value proposition at a significantly lower cost.
To view nine more additional reasons why healthcare organizations pay too much for HIT, view the NET(net) whitepaper, “Top 12 Reasons Why: Healthcare Providers Pay WAY TOO MUCH for IT“
Matt Hartzman is the executive vice president of Healthcare Services at NET(net), Inc., with over 25 years of experience leading technology and technology-driven organizations. Prior to NET(net), Mr. Hartzman was vice president of innovation and chief information officer for the College of American Pathologists with lines of business focused on clinical laboratory quality programs.
More Articles on HIT:
Checklist to Evaluate Patient Engagement Vendor, Technology
Community Health Centers Awarded $4.25M in HIT Grants
ONC Reveals Winners of Consumer-Friendly EHR Contest
