Innovation Amid Declining Margins: Four Questions Health Systems Should Ask Themselves Prior To Investment

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Innovation Amid Declining Margins: Four Questions Health Systems Should Ask Themselves Prior To Investment


Profits are shrinking, clinician and staff burnout is at an all-time high, and patients are demanding more out of their healthcare experiences: this is the reality for hospitals and health systems across the country. Covid has stretched the healthcare system to its limit, and hospitals and health systems continue to look to technology to help solve some of today’s greatest challenges.

So while 2021 may have been another record-breaking year in digital health funding, health systems must proceed with caution when investing in technology – asking the right questions to find the best solutions and partners, the first go-around. Today, taking a strategic, methodical approach to technology purchasing decisions is non-negotiable, especially given the increasing financial strain under which hospitals and health systems find themselves.

Eroding Margins, Increasing Expenses, Tough Decisions

From December 2021 to January 2022 alone, the median hospital operating margin decreased ~71% without Coronavirus Aid, Relief and Economic Security (CARES) Act funding, according to data from Kaufman Hall. Hospitals are also contending with an ongoing labor shortage and lingering supply chain issues, which impact not only patient and clinician experience, but patient safety and outcomes. And despite hospital revenues rebounding in Q4 2021, sky-high costs are eroding already razor-thin margins, with some major health systems reporting operating margins of less than 1%.

Due to this financial reality, health systems know that they have to make significant operational enhancements and improvements, versus small, incremental change, and many are turning to technology to bridge the gap. But investing in the wrong technology can make a difficult situation even worse, burning the already small margins.

Now more than ever, provider organizations must have an assessment framework for making large purchasing decisions, including technology solutions, and consider a number of factors to determine what makes the most sense for their organization.

Four Questions To Ask When Making Technology Investment Decisions

When assessing and choosing new healthcare technology solutions, there are four questions that executives should keep in mind:

  1. What problem does it solve?
  2. How hard will it be to unlock that value (which is rarely considered thoroughly?)
  3. How does the technology fit into your broader technology portfolio strategy?
  4. What is the likelihood that the technology/vendor has staying power (and that it’s not vaporware in disguise)?

1. What problem does it solve, or value does it bring?

This first question seems simple, but can actually be one of the hardest to answer: What problem are you trying to solve? Getting this right is harder than it seems, for many reasons.

As noted by operations management experts — the authors of a 2017 MIT Sloan Management Review piece — “Problem formulation is the single most underrated skill in all of management practice.” Leaders who can formulate clear problem statements tend to get more done with less effort and move more rapidly than their less-focused counterparts. In fact, 42% of businesses fail because it turns out that there was no market need for them.

With this in mind, healthcare decision makers should make sure their teams have clearly defined the problem(s) they are looking to solve at their organizations, which should have references to goals and outcomes that can be measured and tracked. Collaboration between different business units and technology teams is a crucial part of this process as well, to ensure visibility, transparency, and the smartest utilization of resources across the organization.


“Problem formulation is the single most underrated skill in all of management practice.”


For example, does a large primary care clinic really need to buy a second EKG machine, or does there simply need to be a better process for tracking where the current one is in the building, so clinicians can more quickly and easily locate it for their patients that need it?

Lisa Maki, VP of Strategy, Health and Life Science at Microsoft agrees, calling this question a soul searching one. “The organization must know what problem it is trying to solve and… what area of the business it’s trying to evolve before engaging a vendor,” she said.

Only once you fully understand the problem, you can then see if and how technology can play a role in addressing it.

Next, executives must consider how much a given technology aligns with its organizational goals. Vendor pitches for new technology tend to focus on ability to deliver an ROI, but in today’s healthcare ecosystem, ‘hard’ financial ROI is just one consideration. “Whether you’re able to realize ROI still comes down to whether your clinical or administrative staff are going to use it, so we get the input of our staff upfront,” said one health system executive who attended the recent HLTH ViVE event in Miami.

2. How hard will it be to unlock that value?

How much will current workflows and end-user mentalities need to change to unlock the value of a technology solution after it’s implemented? This question is another change management consideration, and speaks to just how hard going from investment to ultimate benefit and payoff can be. And this question is especially important given more than half of organizations undergoing IT transformation initiatives have either stalled or abandoned projects due to the complex personnel, process, and technology changes required.

Another issue here is that, too often, healthcare technology systems and solutions are designed in a way that does not account for how people interact in their work environment, nor the human factors-based solutions make it “easy to do things right and hard to do things wrong.” The more seamless a technology fits into existing workflows, and the less change that’s required to implement it, the more successful adoption tends to be. And this line of thinking is true for both clinician technologies, as well as those designed for patients.

For example, while policymakers and telehealth solutions providers are putting an increasing number of eggs in telehealth’s basket – telehealth funding was the fastest growing segment of digital health funding between 2020 – 2021 – new data from Trilliant Health shows that it is only a small subset of the patient population (younger, female, commercially-insured women) that is using the technology, with a specialty – behavioral health providers – not general medicine, driving the biggest uptick in utilization during the pandemic.

Cynthia Harris Perazzo, EVP of Insights and Advisory at AVIA, an advisory that works with leading health systems nationwide on digital transformation initiatives, has seen successful and challenging implementation of telehealth technology at health systems and understands the importance of sweating the details. “It’s important to consider seemingly small workflow considerations, even answering the question ‘How do you get the patient to sign a HIPAA form’,” she notes.

Hospitals and health systems also need to address change management considerations with the vendors themselves, and ensure that there are clear steps to address issues that will inevitably arise. Have they done thorough research and pilots, informing the implementation approach and frameworks that follow? Do they fully understand your organization’s workflows, and exactly how their product would impact that? What subject matter experts were involved in building the solution? What role did clinicians play?

Vendors may say that any particular step in their technology’s user experience will only take a minute or two, but in health care delivery, those minutes add up to hours and hours of work, often administrative in nature, diverting attention from patient care. In a study recently published in the Journal of the American Medical Informatics Association (JAMIA), nurses in 2017 gave their experience using electronic health records (EHRs) a grade of “F,” where researchers also found that EHR usability was strongly associated with burnout.

Recognizing the human factors and change management considerations can be the difference between a successful implementation

3. How does the potential technology fit into your organization’s broader portfolio strategy for innovation/continuously incorporating new technologies?

How can you build a tech strategy that also aligns with your corporate strategy? Healthcare CIOs, chief innovation officers, chief technology officers, chief data officers, chief digital officers, and other tech-focused leaders and their teams must carefully and strategically think through how to architect solutions as a part of their existing ecosystems, as opposed to jumping to buying multiple disparate point solutions that can’t integrate or solve narrowly-defined needs. Developing a well-thought out portfolio management approach can also help optimize use of operations, IT, and clinical resources over time, to reduce organizational friction and ensure continuous progress is being made.

It can be a challenge to maintain this discipline, but unanimity regarding its importance. Perazzo of AVIA notes “Everybody needs a digital health roadmap, but it needs to be linked to a broader strategic plan.”

Leaders should also consider moving from a passive approach to innovation (see what ideas come to you) to an active one (develop a team that proactively seeks out technologies to solve current problems). Having a detailed make versus buy analysis/consideration strategy mapped out for new solutions can be incredibly valuable, and ultimately can save a lot of time, money and resources. And finally, as one health system executive emphasized, “It’s important to not just look at what technology is in the pipeline, but that you’re effectively utilizing what you’ve already got.”

4. Vendor screening: How likely is the vendor to stick around? Problems and pitfalls to look out for?

Once you’ve determined the value, capabilities and fit of a solution in your organization, next it’s important to properly vet the vendor.

For example, have there been any recent issues that should cause pause, like security issues (data breaches)? More than half of hospitals say they’ve had one or more data breaches caused by third-party vendors in the past two years, with an average cost of $2.9 million per incident – but too many are still failing to do adequate risk assessments. There may also be issues related to data rights and the potential loss of ownership of valuable data, which require legal due diligence and expertise to fully explore and work into agreements.

And perhaps most importantly, how confident are you in the vendor’s business, business model, ability to scale, management experience and the resources to persist? Maki of Microsoft notes, “The market is much more sophisticated than it was 10 years ago but I would still encourage organizations to start with these core questions”

William Chan of Iodine Software, a technology firm founded in 2010, emphasizes that one way for health systems to vet their partners is to bring them closer into the planning process. “As health systems create their digital health plans, it’s important that they ask their technology partners to engage in shared objectives and KPIs,” Chan explained.

All that said, the vendor screening process that is too burdensome risks discouraging teams from pursuing innovation in the first place. Automating tools and tasks in the vetting process, such as vendor assessment questionnaires and updating risk profiles, can help manage an influx of new vendors with the least amount of friction possible.

Don’t Be Seduced By the Shiny Object

In a recent Harvard Business Review article, John Glaser, who previously served as CIO of Partners Healthcare (now Mass General Brigham), spoke about the need to look at technology investments holistically as well — seeing beyond the initial allure of what’s new and now, and avoiding random “splatters” of decision making when assessing new healthcare technologies.

“It’s not that I don’t like technology,” wrote Glaser. “What I don’t like is technology considered in a vacuum, without regard to the bigger picture. Or worse yet, colleagues and superiors so seduced by what I call “shiny objects” that they’re willing to throw that carefully painted bigger picture into chaos. A Rembrandt becomes a Jackson Pollock just like that.”

Hospital executives must take the time to both understand the Rembrandt – all of its intricate details, and how they work together to form a cohesive whole – and avoid taking a Pollock-approach to technology investments and implementation.

Health systems across the country face millions of problems every day — each complex, and many interconnected. Asking the above questions during the technology assessment process is just one way to make change a little easier, and success more achievable, in today’s chaos-filled healthcare environment.



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