Seven Health-Care IT Spending Trends To Know Right Now

Attendees at Everything Channel's Healthcare IT Summit in San Diego certainly won't go home starving for data, not with the number of panels and analyst sessions on Monday and Tuesday that were devoted to pinpointing where all the precious health-care IT dollars are going.

A straw poll of CIOs and other attendees at the conference indicated some skepticism about what Gartner analyst data revealed. Cut-and-dry clarity is not the easiest thing to find in the health-care vertical, and there are as many opinions as there are data points. But most agreed that Gartner conclusions about certain spending trends were in line with what they, too, were seeing.

Solution providers that play in the space should definitely be aware of the following as they gear up for health-care business in 2009.

1. Sixty-Four Percent Of Health-Care IT Budgets Are Being Used To "Keep the Lights On"

Health-care IT budgets are underfunded and will remain underfunded despite incremental increases, explained Gartner Research Vice President John-David Lovelock. IT departments are continually being asked to do more with the same or slightly increased budgets.

But throwing more dollars at those budgets won't change what Lovelock described as the core problem for Care Delivery Organizations (CDO): Nearly two-thirds of budgets go toward keeping systems running, disaster recovery up-to-speed and the infrastructure well-oiled.

"Unfortunately, most CDOs' internal procedures are stuck in a quagmire of overlapping practices and procedures, built on incremental responses to problems," Lovelock emphasized. "Reducing wasted time, money and intellectual capital requires a top-down, zero-based look at IT and business operations."

It begs the question: As a solution provider, are you helping your health-care clients use what they have better and more efficiently?

The sea change for how health-care perceives itself with regard to adoption of technology happened sometime around 2006, Lovelock said. In 2005, only 8.3 percent of surveyed health-care organizations considered themselves aggressive early adopters of new technology, with 55 percent considering themselves "mid" (adopting maturing technology with manageable risk) and 37 percent considering themselves "late" (adopting only proven technologies) -- results consistent with the preceding years. In 2006, those numbers shifted dramatically, with 33 percent considering themselves "early," 40 percent considering themselves "mid" and 27 percent considering themselves "late."

"No, we're not really early adopters compared to say, finance, or other industries. VoIP, for example, is dominant right now among 'early adopters,'" Lovelock said. "But that doesn't matter nearly as much as taking on the psychological improvement of IT Matters in health care. I mean, you still see Windows 95 and Windows 98 in hospitals. You hear things like, 'My system still works on DOS and I don't want to move!' That's finally shifting."

2. There is Little Consensus Among Health-Care Providers For How Much To Invest In In-House Labor And How Much Should Be Purchased From Outside

Current Gartner numbers put about 70 percent of labor spending on IT employees, 15 percent on IT contractors and 15 percent on external IT service providers. Compared to its decades of use in both the commercial and government sectors, Lovelock said, IT outsourcing is new to health care, with only 30 percent of organizations indicating they use a form of IT outsourcing at all.

Lovelock explained that CDOs are most likely to use IT outsourcing as a cost-saving maneuver rather than an innovative one, and the areas that use it most are often seen in the most commoditized -- networking, help desk, Web design and management, and most of all, desktop support. ("Tier one desktop support? It's going out the door," Lovelock said.)

"As an industry, we don't have a response for how to deal with labor," he added. "We don't have a best practice. The proper mix of consultants, internal labor, external services and providers just hasn't been standardized."

Next: Advanced Disease Management Is The Emerging Hot Health-Care Technology

3. Advanced Disease Management Is The Emerging Hot Health-Care Technology

Gartner examined a host of health-care solutions in terms of both the percentage of organizations that have them fully installed and the percentage of organizations that are planning to implement them in the next 12 months. The research found that Computerized Physician Order Entry (CPOE) and cardiology imaging systems are the most fully installed of the solutions. CPOE is on a faster path to widespread adoption, however, because its percentage of organizations planning its implementation is about 30 percent, compared to 12 percent for cardiology imaging systems.

According to Gartner, advanced disease management is the technology solution with both the lowest installed base and the highest percentage of intend-to-implement responses: about 5 percent in the former to about 40 percent in the latter. Technologies with high percentage installed bases and high plans to implement bases include, not surprisingly, ambulatory electronic medical records and e-prescribing.

4. Off-the-Shelf Software Solutions Are Rapidly Losing Favor

While off-the-shelf software still ranks No. 1 with regard to health-care organizations sourcing preferences for software, 2008 is the first year, according to Gartner, that it has experienced a decline in preference for health-care IT purchasers that were surveyed.

"The growing favor for custom-developed software echoes the point that providers are 'fending for themselves,'" Lovelock explained. By that, he means "building out the functionality that is not offered by commercial off-the-shelf providers."

5. Hosted Solutions and SaaS Are Making Major Inroads As Software Options In Health Care

Lovelock unveiled recent results from Gartner's latest Base Survey and, with regard to software, showed how about 64 percent of organizations use on-premises software, 20 percent have hosted software and 16 percent have a Software-as-a-Service (SaaS) option.

"Remote hosting is no longer restricted to back-office applications in health care," Lovelock said. And while on-premises software is still the majority of health-care software installs, Gartner also weighted those results against survey responses to modes, with 56 percent indicating "commercial," 16 percent indicating "open source," and 28 percent indicating "internally developed."

"If we take away that 28 percent of internally developed software from the portfolio mix as on-premises," Lovelock explained, "the resulting mix indicates about 50-50 on-site vs. off-site. If half of the new systems going in at hospitals are not on-premises, [that's] a dramatic change in the way software has developed. It's really moving the market."

6. LAN/WAN Infrastructure and Storage Systems Are The Hardware Types Health-Care Organizations Will Look To Upgrade Most In The New Year

Gartner examined 11 hardware categories -- LAN/WAN infrastructure, storage systems, desktop computers, blade PCs, COWs, tablet PCs, servers, server appliances, printers, wireless infrastructure, handheld devices and mainframe systems -- and found that at least 42 percent of respondents planned to maintain whatever existing environments they had for each category. Sixty-four percent indicated they planned to upgrade or replace their existing LAN/WAN infrastructure or their storage systems in FY 2009 -- the highest numbers in the survey, per hardware type.

7. Health-Care Organizations Are Reluctant Toward Risk/Reward Contracts

"Time and materials" was the most frequently cited answer -- 43 percent -- to the Gartner survey question "What is the percentage breakdown (by contract value) in FY '07 among the following types of contract models (exclusive of IT outsourcing and business process outsourcing)?" Along with the time and materials implications of fixed price contract models -- 23 percent of citations -- Lovelock explained how those numbers suggest that 66 percent of the overall current consulting contract value -- about $2.5 billion in 2007 in the United States -- falls under time and materials.

Those numbers surprised Lovelock, he said, because they suggest CDOs are too often entering into time and materials contracts just to "get things going" without healthy regard for factors, such as unknown desired outcomes and undefined business needs. What really threw Lovelock, he said, was seeing that only 4 percent of those surveyed favored risk/reward contract models.

Most of the reasons for not using risk/reward contracts included contracting, vendor and internal issues, including "Because we don't understand them" and "It has never occurred to us."

"Those are some of the most honest and frank answers I've ever received," Lovelock said, addressing CIOs and health-care providers. "But it shows a lack of understanding of the value you want an external service provider to bring to you. It shows a lack of clarity of what your business will look like. At-risk contracts should be your default. You should be going through the rigor of creating an at-risk because that way you can see if what you've done is adding value."

"IT doesn't get the recognition because we're not able to stand up [in health-care settings] and point and say, 'That's better because of us,'" he continued. "But your profile won't go up, your credibility won't go up, and your budget won't go up if you can't say that."