No pullback on spending

Respondents expect more growth ahead in IT capital and operating budgets

The national spending spree on health information technology could run full bore for a few more years, according to participants in this year’s IT survey. Spending on IT for operating and capital expenses are expected to increase substantially in the near term, a majority of survey respondents indicated, and that’s no surprise.

The federal government so far has shelled out $11.8 billion in electronic health-record incentive payments under the program created by the American Recovery and Reinvestment Act.

While more than 3,600 hospitals and nearly 207,000 physicians and other eligible professionals have shared that money, according to the latest CMS figures, that’s a bit more than half of the $22.5 billion the feds estimate will be spent ultimately on IT incentives under the stimulus law. So there’s a lot of leverage left at HHS to induce even more private-sector health IT outlays, and some of our survey respondents expect to be big spenders, indeed.

For IT operating and capital spending, we asked survey participants to break down each in several ways. For example, 81% of survey respondents indicated they expect to see increases in their direct operating expenses for IT in the next three years, while 14% foresee no change and nearly 5% expect a decrease.

Meanwhile, changes in operating expenses will be fairly modest over that period, most survey respondents said. A substantial majority (69%) indicated they expect operating expense increases of 10% or less, including 40% who thought their increases would be 5% or less. But 17% of respondents thought their increases in operating expenses would be more than 15%, including 10% who expect them to be greater than 20%.

Finally, still dealing with IT operating expenses, the survey also asked leaders to choose from 13 ranges of spending on IT operations as a percentage of their organization’s total operating budget (See chart, p. 28). The highest range, “More than 6%,” was the one most commonly selected—by nearly 15% of respondents. This year, nearly half (46%) of respondents selected ranges above the seventh, or midpoint range of 3.1% to 3.5%. That’s up substantially from last year’s survey when only 35% or respondents selected ranges above the midpoint.

Alan Burgess, CEO of the Tehachapi (Calif.) Valley Healthcare District, a 24-bed criticalaccess hospital that operates three outlying clinics, is in the “more than 6%” club on operating budget.

“We were putting in a brand new hospital (financial) information system and an EHR all at once,” Burgess says. “And I wanted an off-site hosting system. So, I’m paying for four people off site, plus I have three people on site. We’ve sent people for training off site and we’ve had people here from the company that was reimbursable.”

“Our total investment was $1.2 million. We paid all that upfront out of pocket, so you can see why that (operating budget) number is high,” Burgess says. The good news, he says, is that Tehachapi achieved Stage 1 meaningful-use compliance last fall. Burgess says he just learned that $890,000 of the organization’s IT outlay will be reimbursable under the Medicare and Medicaid EHR incentive programs. “We’re looking at about 80% to 85% reimbursement, and that’s what we were hoping for,” he says.

With capital spending on IT, it’s much the same story. Better than two-thirds of healthcare organizations (67%), will see an increase in capital spending on IT over the next three years, according to their leaders who participated in the survey. That’s compared with 18% of respondents projecting no change in capital spending for IT and 15% who expect a decrease.

One in 10 healthcare leaders polled for this survey estimate that future spending on information technology assets by their organizations will consume more than 40% of their capital budgets over the next three years. Some 42% of respondents, however, predicted that spending on IT assets at their shops will be in the more modest range of 11% to 20% of overall capital budgets over the next three years.