Hospitals: reform, stimulus & codes

This month, August 2010, McKinsey has published several articles about the impact of changing regulations and other market dynamics on healthcare costs, investments and benefits. Earlier I summarized and provided a link to one of their articles: Health Insurance: reform, stimulus & codes That post addressed insurance companies; this one provides the save service for hospitals.

New regulations that require US health care providers to use electronic health records (EHR) and adhere to strict data-coding standards will force hospitals to spend billions of dollars over the next decade to upgrade their IT systems. The spending requirements risk squeezing hospital capital budgets already under strain from steadily rising costs. With government incentives covering only a small portion of the total, providers will be forced to recover quickly their investment dollars from operating changes.

… Our research shows that automating and standardizing health care information can bring benefits that extend beyond meeting demands for compliance. A provider that creates a best-practice IT platform to house and share medical records, to manage hospital resources more transparently, and to define precise guidelines for medically authorized tests and procedures can generate significant operating efficiencies. Such a platform minimizes paperwork, reduces the number of unnecessary treatments, and lowers the risk of drug and medical error.

The productivity and resource savings often pay back the initial IT investment within two to four years while also producing better health outcomes for patients. We estimate that total savings across the US provider landscape could be on the order of $40 billion annually. Achieving such a positive return on investment (ROI), however, requires distinctive change-management skills among hospital leaders, better governance, and sustained engagement from key clinicians.

Estimates suggest that a wave of US legislation and regulatory changes will affect up to 80 percent of the existing hospital IT applications. Among the most far-reaching of these developments are provisions, laid down by the American Reinvestment and Recovery Act (ARRA), requiring health care providers to implement IT capabilities such as electronic health records and computerized-physician-order-entry (CPOE) systems. While some providers use electronic health records on a limited basis, the new regulations standardize what is expected from them and make their use mandatory.

An accelerated timetable means that US health care providers have until the end of 2015 to make the investments or face fines starting at $2,000 a bed in the first year and up to $35,000 a bed by 2019.1 In addition, both revisions to the Health Insurance Portability and Accountability Act (HIPAA) 5010 and the switch to ICD-10 require providers to apply strict new data-coding standards—no small task given the number of databases, hospital systems, and clinicians affected.

…US hospitals will need to spend approximately … $80,000 to $100,000 per bed, for the required project planning, software, hardware, implementation, and training.

Our research shows that optimizing the use of labor, reducing the number of adverse drug events and duplicate tests, and instituting revenue cycle management can help typical hospitals generate savings of some $25,000 to $44,000 per bed a year. … The realization of the benefits from health care IT investments will require a radically new approach to IT on the part of the CIOs of health care providers, as well as the business leaders and clinicians those CIOs serve. Health care providers will need to use new approaches to achieve an inclusive governance process with streamlined decision-making authority, a radically simplified IT architecture, and a megaproject-management capability.

Many of the changes that are facing healthcare require new systems, new delivery processes, and new management strategies. In short: new ways of doing business. The sheer volume of work to be done and the need for new thinking suggest a need to bring in new talent to assist those already in healthcare meet the wide ranging challenges of the next few years.

The complete report is at:

The short link to this post is:


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