Healthcare IT (HIT): Building a Solid Business Case

By: Dr. Pawel SuwinskiPrincipal Consultant, Healthcare PracticesFrost & Sullivan Asia Pacific

Understanding hospital HIT

There is a simple and practical approach to hospitals spending with their budgets. Regardless of the hospital size, business model, or geographical location, most of the hospital’s budget goes to maintaining current activities and the remaining is allocated to investments that increase profitability. The investment funds are directed at increasing capability of assets that are the source of revenue. In most cases, this will be the diagnostics and imaging departments, as these are the main revenue centres within the hospital. This leaves any support services, or activities that are not explicitly revenue generators, including IT, to compete for the budget leftovers after the spending spree.

Vendors’ pain point
HIT vendors are finding it extremely difficult to penetrate the healthcare providers market. More often than not, the vendors are left frustrated as their offers are being ignored and are viewed as an unnecessary luxury rather than remedies to a prevailing business and organisational afflictions. Majority of healthcare providers perceive healthcare informatics as forced expenditure rather than profitable investment, and this stems from the perception that IT assets and services are not essential to their core activities. In other words, it is good to have IT but not having it will only have minimal, if not negligible, impact on the overall business operations. This sentiment is further reinforced by the patients as the criteria of their preferred healthcare provider is not affected by the presence (or saturation level) of HIT but rather by the effectiveness of medical treatment and friendliness of encounter - even if it means spending hours in queues to see physician.

The situation is made worse when healthcare providers are often pushing HIT vendors to make more concessions, including payment deferment. While this approach can be practiced upon large technology companies, many smaller market players will find this strategy difficult to sustain. In order to please the clients, many smaller technology vendors will fall into an investment mode and dry out cash flows, just to maintain good client rapport as precious reference. Eventually, market forces will force exit the smaller players, thus effectively eliminating the promise of great technology promises and potential. Under such market conditions, HIT vendors are often exploring new approaches to develop business models that will incorporate the “win-win” component. Since HIT is perceived more of an enabler to existing operations rather than being direct revenue generator, HIT vendors need to effectively showcase a sound business case to be elevated to an essential component of the business operations and therefore gain the budget expenditure priority. The idea might sound easy but is harder to implement, as the existence of direct monetary advantages is veiled behind intangible social benefits.

Through analysing the hospital HIT procurement patterns and decision-making processes, vendors soon realised that if an asset exhibits intangible benefits and does not affect the choices made by patient about their preferred providers, then the willingness to upfront investment is low. If such expenditure is taken away and substituted by different commercial arrangements, hospitals are more likely to acquire such assets. In brief, increasing capital expenditure reciprocally decreases the chances of assets being procured. Therefore, in constructing an effective business case for HIT, the aim should always be directed at avoiding any upfront spending by channeling the revenues into future proceedings. This will unload the burden of hospital budgets and increase their receptiveness to higher functional scope.

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