Eight years ago, Michigan Medicine’s head of pathology walked into the CIO’s office with a number that reframed the hospital’s entire technology budget conversation: The department alone would need 11 petabytes of storage to run digital pathology at scale, at a cost of roughly $1.2 million per petabyte.
Then-CIO Andrew Rosenberg, MD, said that moment crystallized a mismatch he now sees repeated across the industry: the way health systems finance buildings and the way they finance the infrastructure AI runs on have almost nothing in common — and CFOs are still budgeting for the second one like it’s the first.
“Most of our leaders and CFOs are still of the era that when we have a $300 million asset, it’s usually a building, and its refresh from a financial, from a budgetary, from a planning perspective, is on the 20- and 30-year time frame,” said Dr. Rosenberg, who stepped down as CIO of the Ann Arbor-based health system in March and now advises its new chief digital and information officer while teaching at the University of Michigan.
“Whereas that $300 million of [IT] infrastructure we now run at all of these large health systems is refreshed 20% a year, and it’s fully refreshed every five to seven years, depending on how much you want to extend your life cycle … these are the budgetary things that I see are not being really considered.”
The fix, he and other leaders told Becker’s at its annual IT + Revenue Cycle Conference Sept. 14-17 in Chicago, isn’t just a bigger number — it’s a different kind of figure entirely.
“The way to do the storage and compute for digital pathology, for individualized sensor data … is with a variety of cloud-related technologies, which in and of themselves are very expensive,” Dr. Rosenberg said. “We have to wrap our head now from a capital perspective to more of an operating [perspective], which makes very significant changes in how we do our business.”
At Philadelphia-based Jefferson Health, that shift is already well underway. Luis Taveras, PhD, executive vice president and chief digital and information officer, said Jefferson has moved 9,000 servers to the cloud so far this year.
“By February we’re going to be about 90% on the cloud,” Dr. Taveras said.
The margins available to absorb these costs have shrunk, however. Anahi Santiago, chief information security officer at Newark, Del.-based ChristianaCare, said her system used to run on roughly 10% operating margins before the pandemic — a cushion that no longer exists.
“We need to be good stewards in how we demonstrate that we are adding value to the organization,” Ms. Santiago said. Her team has leaned on consolidating its technology portfolio into fewer, larger vendor platforms specifically so it has a clean story to bring back to leadership. “Here’s where we realize cost savings, and yes, budgets are still growing, but here’s the why, and here’s how we’re being responsible,” she said.
Brian Lancaster, vice president and CIO of Children’s Mercy Kansas City (Mo.), said that story has to be told every single budget cycle, not just once. His team recently secured board funding for a disaster recovery buildout by quantifying exactly what downtime costs the organization. The pitch worked — for a while.
“The next year, the CFO shows up and says, ‘Why did your IT budget go up this much?’” Mr. Lancaster said. “I think it’s that constant kind of education on what it takes, the value of the technology, across the board.”
The mismatch scales down, too. Bob Berbeco, CIO of Oskaloosa, Iowa-based Mahaska Health, said his rural system doesn’t have the budget cushion larger academic centers do, so his team built its own AI-powered revenue cycle tool in house rather than buying one, after comparing what a vendor would charge against what it would cost to build.
“We worked the numbers between doing it through Claude and ChatGPT, and the costs were going to be … we’re talking thousands versus hundreds of thousands,” Mr. Berbeco said. He said Mahaska Health benchmarks its own IT spending against peer rural hospitals through the Iowa Hospital Association rather than waiting for a budget ceiling to force the discipline. “I myself am value oriented, so even without restriction, I restrict myself,” he said.
Dr. Rosenberg said the way out isn’t to fight the mismatch line item by line item. It’s to pick a small number of use cases — oncology, cardiovascular care and women’s health, in his experience, tend to be the strongest candidates — and build the capital-to-operating shift around those first, rather than treating cloud migration as one more request competing for the same fixed pool of money.
“Pick five or 10 of these that are important to the institution,” he said, “and start to now transfer the 20-year-old infrastructure … towards cloud-based work, which is the only way to really expand in the way we’ll need to.”
