Health Care & Medical: Tech Innovation Keeps The Doctor In

IT investments help ensure that health-care industry remains robust



Over the next seven years, medical-supplies distributor Owens & Minor Inc. expects to save $35 million through a newly realigned outsourcing relationship with Perot Systems Corp. Much of those savings are being reinvested into new IT developments, including a major rewrite of all Owens & Minor systems so that customers will exclusively transact with the company through Web services and XML instead of EDI, which accounts for 92% of business flow from customers, says CIO David Guzmán. That IT modernization project will make Owens & Minor dramatically faster and more flexible, further helping transform the company into a real-time buseiness and expanding its focus from a distributor of health products to a third-party logistics and services provider.

"We need to be nimble and to innovate and to have dramatic responses to business changes, and technology is the driver to do that," Guzmán says. And he should know: Owens & Minor topped the InformationWeek 500 list as the No. 1 company in 2001 and 2003 (see story, "Top Of The List: Owens & Minor Takes Supply Chain Deeper").

Meanwhile, health-care providers such as CareGroup Healthcare System and Sutter Health are adopting wireless technologies and the Internet for a range of activities, including ordering everything from drugs to lab tests to supplies. These efforts are helping replace time-intensive and error-prone paper processes, giving doctors and nurses better real-time access to information that can ultimately improve patient care.

Tech endeavors like these by hospitals, physician groups, and medical products and services suppliers show how IT is transforming the delivery and business of health care. InformationWeek 500 health-care and medical companies are catching up to industries with longer histories of using IT to become more flexible and efficient.

In fact, the health-care industry is spending more on IT. Health-care companies spent an average of 3.3% of revenue on IT during the past 12 months, up from 2.7% last year, according to the InformationWeek 500 survey.

Certainly, a big motivator for health-care providers' IT investments has been the need to comply with government regulations, especially the Health Insurance Portability and Accountability Act, to ensure patient privacy and informa- tion security and to create standards for transactions. But skyrocketing malpractice premiums, high rates of medical mistakes, and pressure from government and watchdog groups to curb those errors are forcing providers to evaluate and implement IT solutions to improve the standard of care. And they're doing so despite revenue pressures from continued cutbacks in payments that insurers and government programs, such as Medicare and Medicaid, provide.

"The bottom line is that we need to become more productive, and IT is the No. 1 tool for us to compete," says John Hummel, CIO at Sutter Health. This holds true not only for improving Sutter's quality of care, but also for recruiting and keeping the best clinical staff by providing tools to do their work efficiently, Hummel says. "IT is seen as the tool for that salvation," he says.

Sutter, which runs 33 hospitals in Northern California, spends about $100 million annually on IT and has about 680 IT projects in progress at one time. Among its biggest new projects is the building of a master patient index that will use artificial-intelligence technology to ensure that when a doctor accesses information on a patient, such as digitized lab results or X-rays, that information is actually about the person the doctor is treating and not another of Sutter's 5 million patients who has a similar name, Social Security numbers, or other identifying information.

"If I go to the doctor, he needs to know the difference between John Hummel and John C. Hummel," the CIO says. The master index will be patient-centric, not data-centric, Hummel adds, and it will play an important role in Sutter's efforts to replace paper files, hard-copy X-rays films, and other paper-based documents with electronic ones.

With digitized patient information comes the heightened need to keep data secure. Beyond Sutter's compliance with HIPAA-mandated privacy and security regulations, the company is vigilant about the security of its systems, Hummel says. Sutter has an internal security team of about a half-dozen "white-hat hackers" who regularly attempt to hack the company's own Web sites and systems to check for vulnerabilities and ensure that real-life hackers can't get in.

Over the past few years, Sutter has started to rebuild most of its California hospitals to meet the state's strict earthquake regulations. Sutter used the opportunity to install a Wi-Fi network that's being used for wireless bedside applications, including a bar-code drug system that lets nurses check medicines against patients' electronic medical records before drugs are administered. The bar-code system is part of a $50 million technology deployment that's scheduled for completion by 2006. The deployment also includes the rollout of electronic intensive-care units that let critical-care doctors remotely monitor a larger number of patients who otherwise wouldn't have access to that specialty care (see "Mission: Critical," May 19, p. 34). Sutter spent $10 million this past year on a new data center that supports its electronic ICUs.

Health-care providers will continue to emphasize improving clinical systems, patient care, and patient outcomes with the help of IT in the next 12 months. At Baptist Health System Inc., the IT budget for this fiscal year has increased significantly, says senior VP of information resources Charles Jones. But the increase is in marked contrast to deep cost-cutting of previous years. "This spending is catch-up," Jones says.

While about a quarter of Baptist's IT-capital spending is earmarked for projects to replace older systems, the balance is slated for new capital expenditures. Business technologies on the horizon include data-mining and clinical knowledge-management applications that analyze the outcomes of different treatments and ultimately help improve patient care. For instance, by analyzing hip-replacement surgeries, Baptist could detect patterns such as what complications send patients back to the hospital and what care reduced those problems. The analysis could also help Baptist determine which type of prostheses resulted in fewer negative outcomes, Jones says. In the bigger picture, this sort of information can help the provider with overall risk management and with detecting business patterns that give it an advantage over competitors, he says.

Baptist isn't the only health-care company counting on data mining to improve business and care analysis. CareGroup Healthcare System, which operates five Boston-area hospitals, is building data-mining systems and business-intelligence tools to create metrics for analyzing outcomes, says CareGroup senior VP of IS John Halamka. He notes that capital spending, much of it storage-related, is up 30% to $15 million, while spending on IT operations is flat at about $30 million annually. Over the past year, CareGroup replaced its entire computer network, after an overload brought systems down for two days last fall.

"Massachusetts requires that we store all medical records for 30 years, including images," Halamka says. In addition to storing CT and MRI scans and ultrasound and X-ray images, new storage will be used for CareGroup's data-mining, business-intelligence data marts, and centralized storage for mission-critical documents, E-mail messages, and applications.

At CareGroup, Web order-entry systems for prescriptions, lab tests, and supplies are replacing all handwritten orders. That's already been done at CareGroup's Beth Israel Deaconess Hospital, and the systems will be rolled out at CareGroup's other four hospitals during the next year.

The argument against such systems often goes like this: Doctors and nurses resist technology and won't give up paper processes. But doctors and nurses aren't the technophobes they're often made out to be. Physicians welcome technologies that help them hone their decisions by giving them better, more-timely information, as well as tools to help them become more productive, Halamka says. It's challenging running a busy practice, he adds. Web-based alerts that, for instance, remind a doctor that "Mrs. Smith needs a Pap smear" help the doctor as well as the patient, he says.

To ensure that doctors embrace new technologies and have a say in its adoption, Baptist recently began hosting technology "petting zoos," where the 2,000 physicians affiliated with the company's 10 hospitals get a week to 10 days to try out gadgets such as wireless devices, PDAs, and biometric sign-in technologies.

Counter to many InformationWeek 500 health companies, IT spending at Dade Behring Inc., a provider of diagnostic services and equipment and chemical testing agents, is down compared with five years ago, when spending was much higher, says CIO David Edelstein. Still, much of that drop is related to better IT efficiencies and vendor deals, as well as a reduction in the amount of IT consulting commissioned by the company. With much of those savings optimized, Edelstein expects IT spending to remain flat the next couple of years, at about 3% of revenue.

The main role of IT at Dade Behring is to improve customer service, including the hospitals that use its testing products and services. All customer-interaction touch points are Web-based, and Dade Behring makes sure that its reps have access to the latest customer information through the company's Siebel Systems Inc. customer-relationship-management system.

At Universal Health Services Inc., where IT spending will increase 10% this year, the emphasis has been on standardizing on applications and processes. That's had long-term benefits such as making it much easier to facilitate changes in software applications when needed, CIO Linda Reino says. In fact, the systems and software changes needed for Universal to become compliant with HIPAA privacy, security, and electronic-transactions regulations "were rolled out with minimal pain" because of standardization of software and processes, she says. Universal, which operates 105 health facilities nationwide, including 27 hospitals, spends roughly 1.5% of its $3.3 billion revenue on IT.

A move to standardized processes and applications can be particularly helpful when trying to manage the many disparate systems and platforms that come into play when companies merge. That's certainly relevant in the health-care industry, where the large providers are the result of hospitals merging to become regional or national powerhouses.

Jody Davids -- Photo by Sacha Lecca

Cardinal wants to integrate acquired companies' systems, Davids says.

Photo of Jody Davids by Sacha Lecca
But mergers and consolidation have also taken place among suppliers and distributors of medical products. Over the past several years, pharmaceutical and medical-supplies distributor Cardinal Health Inc. has acquired a number of best-of-breed health-products and -services companies that have fleshed out its business, CIO Jody Davids says. With those acquisitions, Cardinal inherited disparate systems and diverse sales-force groups. As such, a continuing goal at Cardinal has been to present a more-integrated face to customers, Davids says.

"As we've acquired companies, we've become best in class" in a variety of product and services offerings, she says. Still, Davids concedes that Cardinal hasn't looked very integrated to its customers. For instance, salespeople from multiple parts of Cardinal's business might make calls on the same hospital, and neither the hospital nor the Cardinal salespeople would realize that the duplication was happening. By becoming a more integrated company, sales personnel will more effectively and comprehensively offer products and services to hospitals, Davids says.

In addition to integrating some of the company's sales systems and migrating others to fewer platforms, Cardinal is working to make it easier for customers to do business with its multiple areas. Cardinal.com, the company's E-commerce portal, lets customers order products online, receive single orders that include products from multiple Cardinal businesses, and receive a single invoice. This all helps in the com- pany's mission to present a more integrated face to customers, Davids says. A dashboard feature was recently added to the portal, allowing "C-level" health-care executives to better track spending related to Cardinal's myriad businesses.

Cardinal also is focused on improving internal efficiencies by better managing its IT infrastructure, including data centers, networks, and desktops, Davids says. For instance, over the next year or so, the company will consolidate eight to 10 data centers into three primary centers, and it plans to make better use of server capacity.

INDUSTRY LEADERS
Rank Company Revenue in millions Income (loss)
in millions
IT
employees
1 Owens & Minor Inc. $3,960 $47 180
2 Cardinal Health Inc. $51,136 $1,056 1,670
37 UPMC Health System $4,000 -- 700
46 St. Joseph Health System $2,514 -- 310
52 Kindred Healthcare Inc. $3,358 $35 371
53 Sutter Health $5,300 -- 925
85 Baxter International Inc. $8,110 $1,033 1,413
102 Texas Health Resources Inc. $1,700 -- 257
122 CareGroup Healthcare System $1,200 -- 300
149 Quest Diagnostics Inc. $4,108 $322 1,473
158 Fairview Health Services $1,600 -- 455
176 Express Scripts Inc. $12,261 $203 350
178 Tenet Healthcare Corp. $13,900 $785 550
195 Universal Health Services Inc. $3,259 $175 340
209 Sun Healthcare Group Inc. $1,900 $1,047 110
213 Sisters of Mercy Health System -- -- 179
261 Laboratory Corp. of America $2,508 $255 1,000
267 Dade Behring Inc. $1,282 $350 210
277 HealthPartners -- -- 400
289 Siemens Medical Solutions Health Services Corp. -- -- 4,100
321 Inova Health System -- -- 200
357 Catholic Healthcare West $5,000 $51 590
380 Baptist Health System Inc. -- -- 130
413 Baylor Health Care Systems $2,071 $80 355
418 Oncology Therapeutics Network -- -- 60
446 Geisinger Health System $1,200 -- 280
466 Community Health System Inc. $2,200 $100 270
Financial data is from public sources and company supplied.
Revenue is for latest fiscal year.
Employee data is from InformationWeek 500 qualifying survey.

SNAPSHOT
INSIDE COMPANIES
Average portion of revenue spent on IT 3%
Average percentage of industry applications and business processes that have Web-based front ends 40%
Companies with real-time business processes in place 89%
HOW COMPANIES DIVIDE THEIR IT BUDGETS
Hardware purchases 19%
Services or outsourcing 16%
Research and development 6%
Salaries and benefits 27%
Applications 20%
Everything else 12%
INDUSTRY FINANCIALS
Average year-over-year revenue change 15%
Average year-over-year net-income change 40%
DATA: INFORMATIONWEEK RESEARCH
See year-over-year shifts in business-technology practices for this industry. Compare and contrast this year's data with last year's.

Return to the 2003 InformationWeek 500 homepage

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