Healthcare organizations pay 17 percent more for technology than any other industry, according to a study conducted by Net(net), an information technology peer networking company (pdf).
The healthcare industry makes significant technological investments to provide critical patient care and manage organizational decisions. However, healthcare organizations pay more than 29 industries sampled in the report. According to the report, there are 12 reasons why healthcare providers pay more for information technology.
1. Healthcare organizations focus on patient care and safety. Healthcare organizations require high performance and reliability in information systems. For this reason, the total costs of these initiatives pale in comparison to potential liabilities, and providers justify high prices. According to the report, when justification for a product is high, customers pay less attention to the price, allowing IT vendors to charge considerably more.
2. Healthcare organizations often lack a profit motive. Without a profit motive, providers may not be as driven by quarterly financial goals and do not view significant and costly investments in technology as a competing value to a quarterly financial target, according to the report. For-profit companies may delay capital investments in order to meet quarterly goals whereas non-profit companies, like healthcare organizations, may not.
3. Healthcare systems are often inefficient and difficult to automate. Healthcare organizations are highly regulated with more intense processes than other companies. The enhanced processes require more technology and automation. In addition, providers may see technology as a means to end and may not consider how to meet their needs at lower costs.
4. Healthcare organizations don't always negotiate diligently. According to the report, healthcare organizations view costs largely as a product of the solution and add it into total consideration without so much as a second thought. In addition, the healthcare industry deals with many products that are not normally negotiated. A culture of trusting the expert permeates and extends to IT, according to the report.
5. Supplier lock-in. Many healthcare organizations make investments in vertically integrated technology solutions with organizations such as Epic, Cerner and McKesson. According to the report, suppliers with vertically integrated solutions have increased organizational influence and greater account control. They may leverage this to drive up prices, according to the report.
6. Single purpose purchasing. According to the report, bundled IT solutions are popular with providers and more difficult to multipurpose across departments and specialties. For this reason, hospitals have to purchase multiple solutions for their infrastructures, which results in higher costs.
7. Industry-specific supplier programs. According to the report, after analyzing the differences between healthcare-specific IT offerings versus non-healthcare specific offerings, researchers found a high percentage of price markups due to marketing. Solutions may be marketed as healthcare specific without any added value.
8. Lack of strategic sourcing. Many healthcare organizations purchase technology in consortiums, which works for commodities like cotton balls, but does not work as effectively with IT, according to the report. The consortiums can cost way too much and may not be the right kind of unit. Or, there may be another solution available that gets the job done as effectively for a greatly reduced price, according to the report.
9. Industry centricity. When healthcare providers network only with other industry peers, they may lack the benefit of cross-industry perspective. When they do collaborate, they realize that their peers in retail, manufacturing, transportation and other industries pay considerably less and have the same technologies, according to the report.
10. Increased government regulation. According to the report, the government should align healthcare organizations' incentives with cost effective remedies, otherwise providers will continue to overpay for solutions.
11. Unprecedented change and mandatory for business sustainability. In order to keep up with the unprecedented change in all sectors of the healthcare industry, providers need to make significant IT investments to achieve compliance and run a sustainable business, according to the report.
12. Healthcare IT is oversimplified. IT in the healthcare industry is one of the most complex areas of IT, and these complexities lead to gaps in experience and competencies in the organizations. Healthcare organizations spend less on IT talent than other industries but have more staff due to inefficiencies. They also pay too much for technology, but have not efficiently automated key processes, according to the report.
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The healthcare industry makes significant technological investments to provide critical patient care and manage organizational decisions. However, healthcare organizations pay more than 29 industries sampled in the report. According to the report, there are 12 reasons why healthcare providers pay more for information technology.
1. Healthcare organizations focus on patient care and safety. Healthcare organizations require high performance and reliability in information systems. For this reason, the total costs of these initiatives pale in comparison to potential liabilities, and providers justify high prices. According to the report, when justification for a product is high, customers pay less attention to the price, allowing IT vendors to charge considerably more.
2. Healthcare organizations often lack a profit motive. Without a profit motive, providers may not be as driven by quarterly financial goals and do not view significant and costly investments in technology as a competing value to a quarterly financial target, according to the report. For-profit companies may delay capital investments in order to meet quarterly goals whereas non-profit companies, like healthcare organizations, may not.
3. Healthcare systems are often inefficient and difficult to automate. Healthcare organizations are highly regulated with more intense processes than other companies. The enhanced processes require more technology and automation. In addition, providers may see technology as a means to end and may not consider how to meet their needs at lower costs.
4. Healthcare organizations don't always negotiate diligently. According to the report, healthcare organizations view costs largely as a product of the solution and add it into total consideration without so much as a second thought. In addition, the healthcare industry deals with many products that are not normally negotiated. A culture of trusting the expert permeates and extends to IT, according to the report.
5. Supplier lock-in. Many healthcare organizations make investments in vertically integrated technology solutions with organizations such as Epic, Cerner and McKesson. According to the report, suppliers with vertically integrated solutions have increased organizational influence and greater account control. They may leverage this to drive up prices, according to the report.
6. Single purpose purchasing. According to the report, bundled IT solutions are popular with providers and more difficult to multipurpose across departments and specialties. For this reason, hospitals have to purchase multiple solutions for their infrastructures, which results in higher costs.
7. Industry-specific supplier programs. According to the report, after analyzing the differences between healthcare-specific IT offerings versus non-healthcare specific offerings, researchers found a high percentage of price markups due to marketing. Solutions may be marketed as healthcare specific without any added value.
8. Lack of strategic sourcing. Many healthcare organizations purchase technology in consortiums, which works for commodities like cotton balls, but does not work as effectively with IT, according to the report. The consortiums can cost way too much and may not be the right kind of unit. Or, there may be another solution available that gets the job done as effectively for a greatly reduced price, according to the report.
9. Industry centricity. When healthcare providers network only with other industry peers, they may lack the benefit of cross-industry perspective. When they do collaborate, they realize that their peers in retail, manufacturing, transportation and other industries pay considerably less and have the same technologies, according to the report.
10. Increased government regulation. According to the report, the government should align healthcare organizations' incentives with cost effective remedies, otherwise providers will continue to overpay for solutions.
11. Unprecedented change and mandatory for business sustainability. In order to keep up with the unprecedented change in all sectors of the healthcare industry, providers need to make significant IT investments to achieve compliance and run a sustainable business, according to the report.
12. Healthcare IT is oversimplified. IT in the healthcare industry is one of the most complex areas of IT, and these complexities lead to gaps in experience and competencies in the organizations. Healthcare organizations spend less on IT talent than other industries but have more staff due to inefficiencies. They also pay too much for technology, but have not efficiently automated key processes, according to the report.
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