Hospitals Will Spend More on IT, Move Toward ACOs in Near Future

Wednesday, March 14th, 2012
This post was written by Jessica Fornarotto

Hospital budgets are on the upswing but cost pressures and changing healthcare models are dictating how hospital leaders are determining their strategic priorities. Sixty-one percent of U.S. hospital executives expect budget increases in 2012, a trend that is expected to continue during the next five years, according to an L.E.K. Consulting Strategic Hospital Priorities Study.

Information technology (IT) is a top area for investment, with 57 percent of hospitals planning to increase their IT spending in this area through 2016, according to the study. During the same time period, one-third of executives are planning to increase spending for large medical devices after several years of delaying medical technology equipment purchases due to financial constraints. Other spending increases during the next five years include facilities (35 percent) and small medical devices (18 percent). Hospital leaders are also willing to pay a premium for disposable products that prevent infections and reduce medical errors — and they expect a 23 percent spending rise in this category.

Most respondents (89 percent) reported increased budgetary pressures during the past year. As a result, 80 percent of hospital administrators continued their aggressive supplier negotiations to better manage costs. Despite their best efforts, there is a concern that rising costs from manufacturers and suppliers, and added costs associated with new regulatory requirements, may raise overall supply costs.

To make the most of their budgets, the study found that 62 percent of hospital executives plan to increase their current Group Purchasing Organization (GPO) use in 2012, up from 52 percent last year. Hospital GPO use is expanding beyond low-cost, high-volume supplies and is increasingly used to purchase higher-priced medical equipment. And smaller hospitals anticipate using GPOs more than larger hospitals because larger hospitals can use their size to negotiate volume discounts with many of their suppliers.

Additionally, many hospital executives are centralizing purchasing to make the most of their buying power, which illustrates a departure from individual physicians taking the lead in procuring key medical products. The development of accountable care organizations (ACO) is also likely to push more centralized purchasing. Currently, less than 20 percent of respondents are pursuing some form of an ACO-like model today. However, 61 percent said they are likely to move toward this model within the next three years.

Other study findings show that a majority of hospital executives (71 percent) are allocating budgets to address operational priorities such as controlling costs, increasing efficiency and improving the profitability of their patient mix. Respondents reported that they are looking for medical device companies to help them address new healthcare insurance reform care and reporting mandates by clearly articulating product cost-benefit value propositions, providing clinical data, sharing risk and offering full solutions.

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