'Cloud projects are powering forward': Health system CIOs on cloud spending amid economic pressures

As many hospitals and health systems deal with declining revenues and tightening margins, departments including IT are looking for areas to cut their budgets. But is the cloud one of them?

Health systems are increasingly moving their EHRs and other applications to the cloud to save money on capital expenditures in the long run. But the upfront operating costs can be significant.

Becker's reached out to CIOs around the country to find out how they're approaching cloud spending and projects amid broader economic pressures. Here are seven health IT executives who responded.

Note: Their responses have been condensed and lightly edited for clarity.

Scott Arnold. Executive Vice President and CIO of Tampa (Fla.) General Hospital: Our organization pared back a few projects to match our financial performance to plan, but not specifically cloud projects. We don't view cloud service as a "nice to have" or unnecessary expense, because the cost is still there whether it is a cloud service or pricey asset renewal of on-premise computer equipment.

We are making seismic transitions away from on-premise equipment to cloud environments to lower our risk profile with better resiliency and availability, especially given our proximity to sandy shores and hurricane probabilities. The transition to the cloud also supports recapturing hospital real estate — once used for a data center — and repurposing that space for clinical coordination or accretive use. Cloud projects are powering forward.

James Wellman. Chief Digital and Information Officer of Blanchard Valley Health System (Findlay, Ohio): We are not paring back on our cloud migrations, and we are doing the opposite by seeking to push the migration at a quicker pace. We feel that the long-term wins with increased cloud-based systems offset any short-term costs we may have now. The expanded cloud options allow us to utilize associates from multiple locations, and we are not confined to on-premise resources. Plus the planned operational costs give us long-term financial planning with viable planned annual increases.

Mike Angelakos, DrPH, and John Kravitz. Associate CIO and CIO of Geisinger (Danville, Pa.):

MA: We're at the beginning of our cloud migration. We're actually investing more, but the difference between us and some other organizations is we're very strategically moving to the cloud. So there are some systems, like for example, [picture archiving and communications systems] — when you get a CT scan or a CAT scan or some sort of MRI, those images are very large files — that are just not made to run in the cloud. It would be very expensive to run in the cloud. They're not there just yet.

But something that is, for example, is our Epic electronic health record system. When we run that system on-prem, we run two data centers with identical equipment so we can have disaster recovery. If something happens in our primary data center, we can very quickly run in our secondary data center. One of the nice things about moving to the cloud is you don't need to have that secondary data center up and running all the time. So we don't have to buy identical hardware. We're doing a subscription, so we only pay for what we use. I would say our initial journey to the cloud is actually going to save us dollars.

JK: We can also reduce the number of application licenses we need when it's off peak hours of the day for the availability of certain applications. That might be a Monday through Friday, 9-to-5 type of scenario. So the clock doesn't burn. It reduces costs in the cloud, where we don't have that capability right now. The cost is the cost; we're just eating it.

Until you get into it deeply, you don't quite understand that you can actually turn down some of your spend. A lot of CIOs don't realize it till you speak to them about that, and they're like, "Really, I didn't know you could do that."

Saad Chaudhry. CIO of Luminis Health (Annapolis, Md.): Most CIOs have always understood that when you go to the cloud, you're trading periodic capital expenses for hardware refreshes, along with data-center operations headaches, for a more predictable, albeit higher, operational cost, month over month and year over year.

I have watermarks set into place that denote the cost for cloud hosting — per system — at which it becomes attractive for me to migrate to a hosted environment. These thresholds take into consideration both the price and the operational metrics of operating on-premise. While cloud-hosting costs were steadily coming down over the pre-pandemic years, they had reached my predefined thresholds in only a percentage of our 250-plus systems. Case in point, our EHR is still hosted by us in our own data center, despite the vendor offering a hosted solution.

I imagine CIOs who are looking to come back on-prem from cloud for the sake of cost are doing so after reviewing their longer-term capital budgeting strategy.

Mark Fred, RN, MSN. COO and CIO of Kirby Medical Center (Monticello, Ill.): Fortunately, we have not had to make such choices. In many post-COVID healthcare markets, volumes continue to grow as the cost of labor and operations is rising. Even in the face of slightly less favorable margins, the fact that cloud hosting offers a lower initial cost, better security and access to on-demand resources continues to make it a better long-term solution than dedicated servers — not to mention the savings in space with choosing cloud over a physical server room. The growing obsolescence of your hardware in relation to the need to stay on the forefront of innovation with the latest software is a given. The ground you lose by choosing not to stay ahead of that curve is very hard to make up.

Christian Lindmark. Chief Technology Officer of Stanford Health Care (Palo Alto, Calif.): We see increased spending in our cloud environments annually and predict it will continue to accelerate in fiscal year 2023 and beyond, for both software as a service (SaaS) and public cloud. Stanford Health Care recently completed a data center consolidation project, moving from five data centers to two co-location facilities and increasing our footprint in the cloud. This is consistent with an overall trend in healthcare, with most organizations determining that owning and operating data centers is not cost-effective or efficient. Furthermore, many vendors in the healthcare space are providing SaaS solutions, eliminating the decision of on-prem versus the cloud.

Historically, when we have looked at our production environments migrating to the cloud, the total cost of ownership has overwhelmingly been more expensive on a five- to seven-year comparison — with capital costs for on-prem hardware and operating costs for management not being reduced enough to offset the increase in operating costs related to cloud spend. However, these comparisons are getting closer each year.

We have found the greatest value in native cloud deployments is with internal software development efforts and disaster recovery environments. The market is still in an early stage, and it will take a few years for some of the greatest benefits for healthcare to emerge, specifically around research data active learning/machine learning.

Additionally, sustainability is a major consideration for us at Stanford Health Care. We are committed to being leaders in improving our IT carbon footprint, and decisions we make related to our infrastructure investments and partners are key considerations moving forward, both in the cloud and on-prem.

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