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May 13 2015   1:43PM GMT

Healthcare CIOs must treat IT as a business

Kristen Lee Kristen Lee Profile: Kristen Lee

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Health IT
health reform
healthcare CIOs

CIOs must be able to clearly communicate and demonstrate the business value of the IT services they provide, Barry Runyon, research VP at Gartner Inc. who focuses on healthcare provider research, wrote in a report. He added that CIOs also need to have a firm grasp on IT costs and be able to intelligently defend those prices and rates.

“Historically, the IT department has been a cost center within the HDO [healthcare delivery organization]– where IT infrastructure, data center, applications and support services have been procured and dispensed –based on budgets not always closely aligned with hospital business requirements or strategic vision,” Runyon wrote.

This approach has led to the mismatch of services offered by IT and other hospital departments and, while this may have worked in the past when the cost of IT was a smaller percentage of the overall revenue, it no longer does, Runyon wrote.

He added, “it is time to better understand how the price of healthcare IT facilitates and undercuts the goal of providing quality, affordable care.”

Ultimately, the value of IT will be determined by the CIO’s ability to govern, deliver and manage a complex and extended IT infrastructure and application portfolio along with increased cost and service level transparency and accountability, Runyon added.

Here are Runyon’s tips on how healthcare CIOs can run IT like a business:

Allow the customer to decide.

“One approach for determining the value of IT is to allow the enterprise customer to decide what type and how much IT they want to purchase and, ideally, from whom,” Runyon wrote. “This would make the annual exercise of crafting an IT budget one based on real choices and business demand and more transparent.”

This kind of transparency would increase trust and elevate the role of IT from a cost center to a strategic business partner. It will also assist the healthcare organization in achieving the right level of spending.

“Competitive advantage will be increasingly determined by competencies needed to select, implement and manage IT, and the budget is the tool for steering resources toward desired business objectives,” Runyon wrote.

Define a set of services the business values and understands.

It’s important that the CIO and IT department define services in terms that the business will not only understand but will value, Runyon wrote. This will help support the healthcare provider as it evolves into a digital business and adopts new business models.

He added, “a strong business orientation will allow IT clients to better understand the IT value proposition and related costs and overhead, and will make it easier for them to identify and select the services and level of support they require.”

Create an IT service catalog that the business understands.

Although the business often has trouble seeing the value in IT, one thing is clear: costs. Therefore it is essential the CIO create a list or catalog of services that describes the business capabilities IT services provide instead of focusing on the technology itself, Runyon said. Oftentimes, the business side doesn’t understand the technology, but they will understand if the CIO and IT team tell them about the business benefits those technologies produce.

When crafting an IT catalog, Runyon suggests it support existing operations and lines of business as well as new business models resulting from healthcare reform, and enable the healthcare provider as the provider evolves to digital business and optimize IT total cost of ownership.

In addition, the catalog should also be more performance-based and service-oriented to achieve the right level of enterprise IT budgeting and spending, Runyon wrote. He also asks the CIO and IT department to consider the role and purpose of the underlying related technologies to the end service and understand their direct and indirect contribution to value.

Deliver acceptable prices and service levels.

“The purchaser ultimately determines value, and the money they spend is an important indicator of how much a product or service is valued,” Runyon wrote. “The healthcare provider CIO’s ability to deliver the right services at acceptable prices and service levels will ultimately determine their value to the business.”

Runyon wrote that the CIO and IT professionals will need to provide comparative pricing for their services so business stakeholders can make informed purchasing decisions. In addition, the annual IT budget should also be based on the decisions the business makes regarding IT service capabilities and performance levels.

Runyon added that healthcare provider CIOs must benchmark their IT services against industry performance and price norms so they can be delivered competitively.

Create an architectural vision.

The growing infrastructure, application and support requirements that healthcare providers have to deal with will continue to drive them toward a hybrid IT environment, Runyon wrote. He added that this means third-party IT products and services will play a more prominent role. Therefore, the CIO needs to construct a portfolio of services built from internal and external sources with IT serving as a direct service provider. The IT department will also need to govern and manage the sourcing and delivery of the external product.

Here are the portfolio considerations CIOs should be thinking about:

  • Third party IT products and services may be a good choice for higher-risk innovation initiatives where the project may be short-lived, Runyon wrote. Especially if that third party offering provides the price, quality, performance and time-to-value constraints that IT cannot.
  • He also advises CIOs seek to simplify the complexity of the technologies by bundling services –for example, storage, network, enterprise content management, etc.– as a flat-rate shared service.
  • Pace layering– a methodology for categorizing, selecting, managing and governing applications to support business change, differentiation and innovation– should be considered in simplifying and differentiating technologies, Runyon wrote.
  • Runyon also advises healthcare provider CIOs “prepare for an IT ecosystem made up of traditional on-premises IT capabilities augmented by managed, hosted and cloud-based IT services –an ecosystem that they will continue to be responsible for from governance, security and service level perspectives.”

All of this means healthcare provider CIOs can expect to face pressure to transform as their organizations confront the industry’s challenges of cost reduction and value-based reimbursement and payment models, Runyon wrote, adding that this “will result in healthcare providers incorporating more and more external service provider services within their solution architectures.”

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