Stick over carrot: Will Hospital CIOs bite the stimulus?

NEW YORK: About 82 percent of hospital CIOs have already cut their IT spending budgets in 2009 by an average of 10 percent. Two-thirds (66 percent) of CIOs say they expect to be asked to make further cuts in IT spend before the end of 2009. Sixty-four percent of CIOs agreed that it is impossible to balance demand with the need to cut costs. And One-half of CIOs with more than 500 beds say that federal funding is "crucial" to their ability to implement EHRs. This is what PWC had as a prognosis as per its March 2009 survey of 100 hospital chief information officers (CIOs).

Now, according to an analysis published by the PricewaterhouseCoopers LLP (PwC) Health Research Institute, federal stimulus incentives for doctors and hospitals to implement interoperable electronic health records (EHRs) may not compensate them for the overall costs incurred, but future penalties from reduced Medicare reimbursement could be a bigger motivator.

The federal government estimates that the conversion to digital records will save $12 billion in healthcare spending over 10 years, which presumably would be seen in lower Medicare and Medicaid outlays. Since hospitals are the biggest beneficiary of government health spending, they are most likely to experience the biggest reductions.

In its paper entitled "Rock and a Hard Place: An Analysis ," PricewaterhouseCoopers says that capital-constrained healthcare organizations are struggling to find the necessary funding to purchase EHR systems at a time when they are being asked to cut information technology costs.

"The stick, even more than the carrot, makes a fiscally compelling argument for adopting electronic health records," said Daniel Garrett, managing director of PricewaterhouseCoopers' health industries technology (HIT) practice as per a news report. "It's a small carrot compared to the amount of resources it will take to deploy this technology over the next five years. If an organization wants to have an enterprise-wide EHR up and running by 2011, they've got to start now. The incentives eventually go away and the stick will only get bigger."

To help drive adoption of electronic health records by 2015, the federal government is investing $33 billion in incentives to providers. PwC also estimated that the average three-physician practice can expect to invest between $173,750 and $296,000 over two years to purchase and maintain an EHR system.

According to PwC, one of the more problematic aspects for providers is that while they may realize some return on their EHR investment, the primary return on investment is expected to mostly accrue to private and public payers.

"Some of the hardest work to be done in healthcare reform is still undone, that of an overall alignment of financial incentives from acute care and disease to wellness and prevention," said David Levy, M.D., PricewaterhouseCoopers global healthcare sector leader according to a media report. "Ultimately, technology may enable the capture, analytics and transparency required to make a patient-centered health system a reality."

There is also a indication that Health IT is moving from a voluntary initiative over the past decade to a highly regulated one with new rule-making government committees, stricter privacy laws and more onerous fines. Nevertheless, with billions in new funding and government regulations, the health IT market will balloon far beyond the provider segment, providing new opportunities for health plans, pharmaceutical companies and other vendors.