Improved IT and Telecom Cost Control Fight Declining Hospital Revenues

By Jon Winsett


September 19, 2014

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Hospital revenues are on a sharp downward trajectory, according to a recent report from Moody’s Investors Service on the financial health of nonprofit hospitals. Revenues, as well as rate of revenue growth, are reaching historical lows. For those in the healthcare industry, this doesn’t come as a surprise – it’s one of the consequences of changes across the healthcare payment ecosystem.

As a result of revenue decline, expense containment has become a top priority – with many healthcare executives calling for large-scale changes to operational processes and care delivery. The problem with these initiatives – while necessary – is that the yield will not be realized in the short term. In tandem, hospitals need to identify cost control measures that can deliver more immediate impacts without sacrificing quality of care and service.

IT and telecom are two spend categories that are prime candidates for improved cost control for three reasons. First, pricing disparity is rampant. The discrepancy between what two hospitals with similar technical requirements pay for software, hardware or network services may be 20, 30 or even 50 percent depending on the vendor. Second, the problem is only getting worse. Healthcare delivery is becoming more automated and regulated, which means hospitals will be required to spend more on IT/telecom – and vendors are ready to capitalize on this pressure. Third, with the right expertise, these categories can yield immediate savings.

There are four steps that hospitals can take to reduce IT and telecom expenses right now:

Benchmark every purchase. Validate fair market value pricing and discount levels for every purchase over $25K – it’s the most important step you can take to reducing IT expenses without sacrificing capabilities. NPI finds that only 35% of purchases are at fair market value, and 65% show material opportunity for improvement in pricing and terms.

Eliminate or minimize annual rate increases. Negotiate annual rate increases for support and maintenance out of your vendor contracts. If that’s not possible, cap them to keep costs in check over the duration of your agreement.

Know your licensing options. At NPI, we’ve written a lot about how vendor’s licensing programs are changing in response to the consumerization of IT. In some cases, these changes are advantageous to customers; in others, they’re not. Your IT sourcing team must understand ALL licensing programs that fit your unique technical and business requirements - not just the ones being heavily promoted by your IT vendors. At NPI we find costly mismatches in areas such as Microsoft, Oracle and SAP licensing, as well as wireless telecom program selection.

Take a cross-functional approach. IT sourcing in the healthcare setting is distinctly complex. Departmental users, sourcing experts and IT professionals should all be involved to make sure business, finance and technical requirements are all met.

So, how do these tips translate into lower IT and telecom costs? Learn more here.