Largest systems investing more in IT, physicians
Some of the largest U.S. health systems with the strongest balance sheets are spending less on operations and investing more in informa- tion technology and doctors.
Executives from 29 systems met in New York last week with bankers, investors and credit analysts at an annual conference to review system finances, operations and strategic plans. The event, in its 12th year, is sponsored by Citigroup, the American Hospital Association and the Healthcare Financial Management Association.
Catholic Healthcare West will seek to squeeze $200 million from its expenses in the next two years. In Englewood, Colo., Catholic Health Initiatives plans to boost IT spending to 21% of its capital budget next year from 5% in 2010. And Ascension Health, the nation’s largest not-for-profit health system, said physician deals now account for 9% of its capital budget compared with 3% historically.
“Obviously, where they put their capital is where they think the future is,” said HFMA President and CEO Richard Clarke.
Efforts to curb hospital expenses, already under way after the credit crisis and recession drained cash, underscores a belief that rates from insurers will grow more slowly than in recent years, attendees said. Reporters are not allowed to attend conference sessions but are allowed in the event hallways.
Richard Umbdenstock, AHA president and CEO, described a “huge shift” toward cost management and avoidance. “It’s already under way,” he said.
Meanwhile, pressure to lower costs and boost care has helped shift capital away from hospital development toward investments considered necessary to keep patients from growing acutely ill: doctors and technology. “I can envision a time that every hospitalization is a failure of care,” said Robert Henkel, chief operating officer and president of healthcare operations at St. Louis-based Ascension.
Henkel said that working more closely with doctors does not mean hiring every doctor through its hospitals—a strategy he described as unaffordable. The objective, he said, is to break even and identify how to efficiently manage practices’ administrative overhead. Ascension also reported that IT accounts for slightly more than one-fourth of its $1.2 billion 2011 capital budget compared with 9% historically.
Richard Rothberger, executive vice president and chief financial officer for Scripps Health, described the system as a late entrant to IT. Executives chose to wait for more mature technology and now plan to spend $103.4 million through 2014 on electronic health records and other IT investments, including $4 million in subsidies for affiliated doctors. Scripps expects to recoup $45 million from federal incentives, he said.
Catholic Health Partners now employs 200 doctors in Cincinnati compared with 10 two years ago, said James Gravell Jr., senior vice president and CFO for the system. Executives believe demand for hospital care will decline, and the system is “betting on doctors.”