October 8, 2012
HIT Financing Snafus
By Lindsey Getz
For The Record
Vol. 24 No. 18 P. 8
Creating a budget and managing financing for any project can be difficult, but HIT projects in particular are tricky when it comes to predicting resource needs. Recognizing the amount of financial planning that goes into these projects is the first step.
“And remember that this is not easy,” says Todd Nelson, MBA, technical director and senior financial executive/accounting for the Healthcare Financial Management Association. “No canned product will just fit into every hospital, so there’s a lot of work involved from all parties. IT projects are complex and complicated processes that not only touch upon technology and revenue but also operations, business processes, and even the clinical care of patients, so remember that this is complicated and it’s critical to get a good team together.”
According to the experts interviewed for this article, there are three key mistakes hospitals should avoid when financing an HIT project.
Financing After the Fact
Hospitals commonly fail to take the postimplementation period into account in terms of budget, especially after a large investment was doled out for the “guts” of the project. “It’s like ‘We got it in, let’s move on,’” Nelson says. “But once it’s in, you have to make sure you have enough support not just from the vendor but also internally. This will ensure you’re actually optimizing the system you just made a huge investment in.”
“We’ve seen that before—the project is financed up until it’s done and then there’s no more budget,” says Sheri Stoltenberg, CEO of Stoltenberg Consulting, Inc. “One of the biggest problems hospitals have today is increasing their operating budget in the IT sector. They may have no problem financing it in a capital sense, but once everything is done, they don’t have the long-term operating budget they need.”
Estimating exactly what’s needed in terms of resources and gauging a timeline for completion can be difficult, says Judy McCarthy, chief technology director at National Jewish Health in Denver. “Hospitals need to try their best to get a good handle on the project and what exactly is involved,” she says. “It’s not uncommon to underestimate resource commitments and timelines. It can be really hard to plan for budgets with HIT projects, but factoring in enough for contract or consultant help even in the postimplementation period is important.”
It’s about failing to look at the bigger picture, Stoltenberg adds. With mandated time constraints imposed by the government, many hospitals are just focused on getting the system up and running. “Hospitals need to be realistic about what their operating budget is going to be,” she says. “That includes staff resources. What ends up happening a lot is that hospitals don’t hire the people they need on the back end early enough and then they’re in crisis. Hire the people that are needed for the project’s back end on the front end. Anticipating those extra resources in advance goes a long way.”
When creating a contract, it’s important to ensure that payments for any external team—whether it is a vendor, a supplier, or an implementation team—are linked to the actual work being completed, Nelson says. “Don’t just link payments to a date on the calendar,” he says. “Yes, a lot of times there needs to be a down payment by a certain date, and that’s fine. But any periodic payments beyond that need to be tied to completed work.”
This issue made news recently when the University of Virginia filed a lawsuit against GE that claimed the technology firm IDX (owned by GE) did not reach certain milestones during the course of implementing an EMR. The dispute sheds light on the importance of including clearly defined milestones in the contract. Nelson admits this isn’t always easy. “The language of the contract can be challenging,” he says. “What the hospital feels is an IT milestone may be different from what the vendor feels is a milestone. Trying to define those as specifically as possible is key. Make sure that the terminology is as clear as possible and is agreed upon throughout the entire contracting process.”
Stoltenberg recommends having a credible person involved during the strategic contract review process. “You want someone who has implemented this system many times to be reviewing the contract,” she says. “If they have never implemented it but are the ones creating or reviewing these numbers, they might not really understand what’s involved.”
McCarthy adds that finding a vendor that wants a true partnership and being clear on objectives can help combat some of the confusion over milestones. “That type of disconnect over what constitutes a milestone could be avoided if you build a partnership with good communication up front,” she says. “You want to be sure you are on the same page and in total agreement as to who has the responsibility for what. Most large jobs are commonly geared around a certain percentage of payment being made at each milestone, so you really want to make sure you’re clear on what that milestone is before the project even begins. Be prepared for the fact that getting into those specific details does require time.”
Rushing the Project
Time is an important detail in any big project. In many cases, it’s the lack of time that winds up being a major problem.
“Hospitals are on the fast track right now with the government mandating certain expectations,” McCarthy says. “That means a lot of hospitals are in a rush to get those contracts written up and moving forward. But that rush can mean missing some important points.”
Nelson agrees, adding that rushing into an IT project is one of the biggest mistakes a hospital can make. “You really have to take your time,” he says. “Trying to rush an IT project to hit a deadline—whether it’s an internal deadline or a financing window—can really cause you to skip some basic steps. There are definitely plenty of incentive deadlines as well as financing deadlines, and these are important but taking your time to make sure you do your due diligence is also really critical. If you’re rushing through it, you’re bound to make a mistake.”
— Lindsey Getz is a freelance writer based in Royersford, Pennsylvania.