It's a busy time for health-care companies. Long one of the biggest information-technology laggards, the industry now faces government regulations, watchdog groups, and increased competition, all of which have motivated companies to catch up. Health-care companies on this year's InformationWeek 500 list are aggressively using technology to tackle a barrage of challenges.

Included on the list of expensive and frustrating demands with which these companies are struggling are compliance with fast-approaching Health Insurance Portability and Accounting Act deadlines, a nationwide shortage of nurses and other caregivers, preparedness for possible biological or chemical terrorism, and overall pressure to improve patient-care quality, reduce medical errors, and cut costs. IT's role: to streamline or eliminate processes that bog down medical staffs and make patients vulnerable to mistakes, and to improve the efficiency of health-care companies' supply chains and financial processes.

When hiring nurses, one of their top five questions besides "Who'll be my boss?" and "What's the pay?" is "What kind of IT do you have to help me with my job?" says Larry Stofko, VP of IT architecture and strategy at St. Joseph Health System, which operates 10 hospitals in California and five in Texas. Overworked nurses are pushing health-care companies to adopt technologies that will liberate them from mountains of paperwork so they can devote more time to patient care.

Depending on where they're located, health-care companies are also feeling local pressures that can cut into IT budgets. For instance, hospitals in California are faced with seismic renovation work to make their buildings safer in earthquakes. St. Joseph Health System will spend $500 million in capital expenditures during the next five years to do just that, Stofko says. This could compete for IT funds earmarked for improved clinical systems and new E-health initiatives, including an electronic order-entry system for everything from latex gloves to drugs. These systems will reduce drug errors by eliminating illegible handwriting and red-flagging bad interactions and allergies, and they'll cut the cost and time associated with ordering drugs and other supplies, he says. Stofko's 2002 IT budget is 3% of St. Joseph's $2.3 billion in revenue, up from 2.5% last year.

St. Joseph has plenty of company. IT spending in the health-care industry is on the rise, despite pressure from the weak economy, reduced state Medicaid spending, and federal Medicare cutbacks. This year, health-care companies are expected to spend $35 billion on IT, 8% more than last year, according to statistics from IT advisory firm Gartner.

Patient-care systems improve quality of care, Chapman says.

The 1997 Federal Balanced Budget Act was expected to reduce Medicare reimbursements that hospitals receive for Medicare patients by 17%. But in reality, because of government formulas used to calculate reimbursement schedules, those reductions were closer to 35%, says Rick Chapman, senior VP, chief administrative officer, and CIO at Kindred Healthcare Inc., an operator of 65 long-term acute-care facilities and 300 nursing homes. This dramatic reduction fueled an industry shakeup that resulted in the bankruptcy of some health-care providers in recent years, including Kindred. But the company managed to emerge from bankruptcy nearly a year and a half ago, and IT is playing a significant role in its post-Chapter 11 management of finances and quality of care, Chapman says.

Among Kindred's priority IT projects is integrating its hospitals' clinical reporting systems, which assess the medical status of patients' recovery with best-practice systems to assure that all possible services and care are being provided, with financial and billing systems. This integration helps to ensure that Kindred bills and is reimbursed for those services.

While patient-care systems don't usually produce an immediate measurable return, they have a significant impact on overall quality of care, Chapman says, explaining that busy nurses often forget to document all services that they provide to patients. For instance, documentation showing whether a nursing-home patient needs help in and out of bed to visit the bathroom can shed light on the patient's recovery status. Kindred is evaluating mobile devices, possibly PDAs or touch-screen units, that will let nurses easily enter information at patients' bedsides or at a nursing station. This will improve the information collected for its clinical records and help Kindred improve its billing processes as well, Chapman says.

Owens & Minor Inc., the $3.8 billion-a-year medical-supplies distributor that topped last year's InformationWeek 500 list, is working closely with clinical software vendor Cerner Corp. and enterprise resource planning software provider Lawson Software Inc. to incorporate Web services that will better integrate these vendors' software used at health facilities with Owens & Minor's various distribution systems. The ultimate goal is to cut costs, eliminate errors, improve precision, and reduce manual labor for hospitals, says David Guzmán, Owens & Minor's senior VP and CIO.

Through these efforts, Owens & Minor is creating "a clinically driven value chain for health care," Guzmán says. Owens & Minor's customers haven't used clinical information when ordering supplies; instead, supplies are ordered based on historical patterns of hospitals' usage of those supplies. This new integration between clinical, distribution, and financial systems "will give a forward-looking view of what's actually needed, rather than have us looking in the rear-view mirror," Guzmán says.