Another boost for budgets
IT taking a bigger bite out of capital spending
Amajority of healthcare leaders say that health information technology is claiming a bigger slice of the spending pie in their organizations, according to this year’s Modern Healthcare/modern Physician Survey of Executive Opinions on Key Information Technology Issues.
For example, more than four in five survey respondents indicate they expect IT operating expenses at their organization to rise during the next three years. Spending on IT as a share of overall budget items is expected to grow as well, survey results show.
This year, as in the past, a significant portion of the survey was devoted to asking respondents about how much money they have spent on healthcare IT and how much they intend to spend in the future.
To that end, the survey sought to measure how well IT spending competes in the ongoing scramble within organizations for its share of scarce financial resources and also to determine the balance of spending within IT departments between outlays for capital vs. operations.
To learn about trends of IT spending over time, respondents also were asked to compare their IT spending histories during the past three years with their IT spending expectations in the coming three years.
Operating expenses for health IT most commonly fall in the range of 2.1% to 2.5%, according to our survey (See chart below).
With better than half of survey respondents this year reporting they want to increase their IT staffs by 10% or more in the next 12 months (See story, p. 24), it follows that IT operating expenses should be going up. So it’s no surprise that 81% of survey respondents expect IT operating expenses at their organization to rise in the next three years.
Not quite half (46%) of those leaders who are expecting an increase in IT operating expenses indicate those expenses will go up in the range of 6% to 10%. Another 21% think expenses will rise by a more modest 5% or less. But nearly one-third (32%) foresee significant increases of 11% or more, including one in 10 leaders who think their increases will be larger than 20%.
To ascertain where IT spending ranks within the overall pecking order of their organizations, the survey asked healthcare leaders what percentage of their organizations’ overall capital budgets was spent on IT assets during the past three years, and, looking forward, to estimate the percentage to be spent in the next three years. Participants were given budget ranges to choose from.
In this year’s survey, the most commonly selected budget range of IT capital spending to overall capital budgets—both past and future— was 11% to 20%.
Some 35% of survey respondents indicated their organizations had budgeted in the 11%to-20% range over the past three years, while 37% indicated they thought their IT budgets would be in that range in the next three years.
Similar slight increases were expected by respondents whose organizations had capital budgets allocated to IT assets in the 21%-to40% range. Some 24% of respondents indicated their organizations had budgeted in that range during the past three years, while 25% indicated they plan to spend in that range in the next three years.
So if IT is benefiting from a relatively larger slice of the overall organizational capital spending pie, what’s happening to IT capital spending within organizations in real terms? (After all, if the overall capital pie were shrinking, even bigger slices for IT could mean less pie.) The answer, however, according to health leaders surveyed, is that capital spending on health IT also is on the rise. A sizable majority of respondents, 62%, indicated overall IT capital spending at their organizations would increase over the next three years. Another 23% of respondents indicated there would be no change, and only 15% projected a decrease.
But the sky is not the limit on IT spending. Of those who expect an increase in capital spending on IT over the next three years, a solid majority—63% of respondents—envisioned increases of 10% or less. Specifically, 41% of respondents foresee IT capital expenses rising during the next three years in the range of 6% to 10% and another 22% of respondents think the increases will be smaller, 5% or less.
Of the minority of organizations projecting a decrease in IT capital spending over the next three years (15%), 57% of those respondents expected the cuts to be in the ranges of 10% or less.