2003 Integrated Delivery System IT Budget and Staffing Study Results

Transcription

1 J. Gabler Strategic Analysis Report 30 December Integrated Delivery System IT Budget and Staffing Study Results Priorities for integrated delivery systems appear to have shifted to focus more on clinical quality than on financial health. Despite limited revenue, IDSs are funding IT investments to improve quality of care and operational efficiency. Management Summary Since 1988, Gartner has conducted periodic surveys of the IT spending and staffing levels of integrated delivery systems (IDSs), and of key business and IT issues facing these enterprises. This Strategic Analysis Report provides details of the results of Gartner's most recent IDS Budget and Staffing Study, as well as analysis of selected findings from the survey data collected. Highlights of the latest findings include the following: IDS sizing and IT staffing. On average, IDSs employ approximately 7,300 full-time equivalents (FTEs), and own four acute-care hospitals. Programming and analysis dominate the functional categories of IT personnel employed by IDSs, followed by technical support, communications, IT operations and IT management. IT capital and operating budgets. In light of the healthcare industry s continuing financial plight, IT budgets appeared to survive relatively intact in IT budgets are expected to stabilize somewhat, as 60 percent of IDSs reported that they expect to increase or maintain their IT operating budgets in their next budget year, and 74 percent of IDSs expected to maintain or increase their IT capital budgets. Outsourcing. The use of external service providers (ESPs) appears to be growing among IDSs. More than one-third (36 percent) of IDSs surveyed reported that they already outsourced at least one IT function, and a higher percentage (44 percent) reported plans to outsource one or more IT functions in their next budget year. Business and IS priorities. Clinical initiatives dominated the business issues cited a significant shift from responses in 2001 and 2000, when growth and financial improvement topped the list. Among the first-tier business priorities cited, clinical automation and improvement was mentioned by 57 percent of IDSs, while patient safety and error reduction was mentioned by 42 percent. Gartner Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

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3 CONTENTS 1.0 Introduction Notes on Interpreting the Data Sizes of IDSs IT Staffing IT Capital Budgets IT Capital Budget as Percent of Total Capital Budget IT Capital Budget Growth Plans IT Capital Budget Breakdowns by Component IT Operating Budgets IT Operating Budget as Percent of Total Operating Budget IT Operating Budget Growth Plans IT Operating Budget Breakdowns by Component Outsourcing HIPAA Spending IS and Business Initiatives Conclusions...20 Appendix A:Acronym Key December

4 FIGURES Figure 1. Percentage Breakdown of IT FTEs by Function and Revenue Category...8 Figure 2. Percentage Distribution of IT Capital Budget Categories...12 Figure 3. Percentage Distribution of IT Operating Budget Categories...16 Figure 4. Percentage of IDSs Outsourcing Selected IT Functions December

5 1.0 Introduction The goal of Gartner's IDS IT Budget and Staffing Study is to capture the changing patterns of IT investment and spending in the healthcare provider industry. These results present a measure of key variables, including IT operating and capital budgets, IT staffing levels, outsourcing, and business and systems priorities for IDSs. Gartner has identified approximately 360 IDSs in the United States. For the purpose of our research, fully qualified IDSs are characterized as organizations that: Deliver a vertical array of healthcare services including physician, inpatient, laboratory, home care and radiological services through owned or contracted resources Have a fundamental mission of providing care while reducing costs and improving clinical quality and patient/member satisfaction Assume increasing responsibility for coordinating and providing a broad spectrum of care for a defined population Have a major leadership, presence and revenue base in their service areas A total of 85 IDSs across the U.S. participated in the most recent edition of the study, which was conducted in January and February of In a continuing effort to ensure accuracy in describing trends among IDSs, we chose the sample to reflect all IDSs based on revenue and regional groupings. The majority of responding individuals were CIOs. The results outlined herein are shown both in aggregate form and by gross revenue category. Table 1 presents a breakdown of the responding IDSs by gross revenue range. Table 1. IDS Study Participants by Revenue Range Gross Revenue Range No. of Participating IDSs Less than $500 million 31 $500 million to $999 million 18 $1 billion and greater 36 Source: Gartner Research 1.1 Notes on Interpreting the Data IDSs vary in terms of size and budgeting and spending patterns, and a few very large IDSs included in our study tend to drive up the overall averages. Therefore, some results are presented in terms of both averages and medians (or midpoints). The interquartile range that contains 50 percent of the reported values, from the 25th to the 75th percentile, is also provided. Often, this is a better indicator of central tendency than the mean, because it is less skewed by very high or low values. Where participants were asked to provide information concerning their current budget year, the resulting data is identified with the label "2003," since the survey was completed in February of that year. Note, however, that many respondents' then-current fiscal years spanned 2002 and 2003 calendar years. Also 30 December

6 note that comparative budget data labeled as "2001" and "2000" reflects data collected in the two mostrecent IDS studies prior to this one, which were conducted in mid-2001 and mid-2000, respectively. 2.0 Sizes of IDSs The characteristics of IDSs vary considerably from one organization to the next. They range in size from 800 to 50,000 employees, from one hospital to 28, and from one physician office to 1,800. Most IDSs own at least a few other entities, such as nonacute facilities, ambulatory clinics or home health provider agencies. On average, IDSs employ approximately 7,300 full-time equivalents (FTEs), and own four acute-care hospitals. The majority of IDSs (56 percent) own less than four acute-care hospitals. A few very large IDSs own as many as 30 hospitals. IDSs in the largest revenue category own six hospitals on average, whereas the smaller IDSs own an average of three. Most IDSs (58 percent) own less than three non-acute facilities (such as outpatient surgical centers and rehabilitation centers), and approximately three-quarters (76 percent) of IDSs own no more than two home health agencies. Interestingly, half of all responding IDSs own no long-term care sites, nor do they contract with them. More than half of IDS study participants (60 percent) do not own a managed-care plan whether a health maintenance organization or other risk-bearing entity. The average number of owned medical offices is 20 although the median figure is seven, with the middle 50 percent of responses falling between two and 20. IDSs employ approximately 300 physicians on average; however, the median figure for employed physicians is 120, with 50 percent of IDSs employing between 30 and 300. IDSs on average are affiliated with 1,650 physicians. 3.0 IT Staffing On average, IDSs employ 135 IT staff members and contract with nine IT FTEs, for a total of 144 IT FTEs, which is a 12.5 percent increase from the previous year of 128 FTEs (114 employed and 14 contracted). As Table 2 shows, each employed IT staff member supports an average of 56 IDS employees; when coupled with contracted staff, however, this ratio drops to 53:1. 30 December

7 Table 2. IT Staffing Ratios IT Staffing Averages All IDSs Less Than $500 Million $500 Million to $999 Million $1 Billion or More Employed IT FTEs Contracted IT FTEs Total IT FTEs IDS Employees Supported per Employed IT Staff FTE IDS Employees Supported per Total IT Staff FTE 56.2:1 60.1:1 53.4:1 55.0:1 52.7:1 55.5:1 51.8:1 51.3:1 The costs, in terms of salaries, benefits and other related expenses, to support employed IT staff members average approximately $9.8 million (or $72,600 per employed IT FTE) for all IDSs, which represents approximately 44 percent of an IDS s average IT operating budget (see Table 3). The 18 percent increase in employed FTEs (114 to 135) resulted in a 10 percent increase in staffing costs over the previous year. Table 3. IT Staffing Costs Average Costs per IT Staff FTE All IDSs Less Than $500 million $500 Million to $999 Million $1 Billion or More IT Operating Dollars Budgeted for Employed IT Staff Expenses $9.8 million $5.2 million $6.0 million $15.2 million Cost per Employed IT Staff FTE $72,600 $87,700 $62,700 $69,600 Percent of IT Operating Dollars Budgeted for Employed IT Staff 44.1% 44.5% 43.5% 43.9% Participants were asked to categorize their IT staff into nine different functional IT areas: management; programming and analysis; technical support; computer operations; telecommunications and network support; administrative support; security; management engineering and business process re-engineering (BPR); and other IT functions. IT functions that fall into the "other" category include switchboard operators, database administrators, Web developers, and department-specific support staff in areas such as clinical-ancillary medical-records functions. Table 4 presents a breakdown of the average number of IT FTEs by IT function and by revenue group, while Figure 1 shows a percentage breakdown by IT function and by revenue group. 30 December

8 Table 4. Average Number of Total IT FTEs by IT Function IT Function All IDSs Less Than $500 Million $500 Million to $999 Million $1 Billion or More Programming/Analysis Technical Support/Help Desk Telecom/Network Support Computer Operations Management Other IT Functions Administrative/Clerical Security Management Engineering/BPR % 35% 30% 25% All IDSs Less Than $500 Million $500 Million to $999 Million $1 Billion or More Percent of Total FTEs 20% 15% 10% 5% 0% Programming Technical Support/Help Desk Telecom/Network Support Computer Operations BPR FTE IDS Management IT Function Other IT Functions Admin. Support business process re-engineering full-time equivalent integrated delivery system Security Mgmt. Engineering/BPR Gartner IDS IT Budget and Staffing Study, February 2003 Figure 1. Percentage Breakdown of IT FTEs by Function and Revenue Category 30 December

9 As a group, programmers and analysts comprised the largest portion of IT staff, with an average of 51 FTEs (including 49 employed and two contracted), representing 35 percent of total IT staff. IDSs in the smallest revenue category have a lower percentage of programmers and analysts, at 33 percent of total IT staff, compared to IDSs in the other revenue groups. IDSs in the smallest revenue category had, proportionately, the most network support staff, at 14 percent of total IT staff compared with 11 percent for IDSs in both of the larger revenue groups. In the only other major variation among IDS revenue categories, IDSs in the smallest revenue category had a proportionately higher amount of computer operations staff, at 13 percent of total IT staff compared with 10 percent and 8 percent, respectively, for IDSs in each of the larger revenue groups. 4.0 IT Capital Budgets Table 5 shows IDSs' average IT capital budgets, by year and by revenue category. Highlights of the findings include the following: The average IT capital budget reported by IDSs in early 2003 was approximately $9.7 million, representing a decrease of 6 percent from the average budgets reported in our mid-2001 study. In 2001, IT capital budgets rose by 20 percent compared over 2000 levels. The decrease in 2003 is due to an overall decrease in total capital budgets (by over 20 percent). IDSs in the smallest revenue category experienced the smallest decrease in their 2003 budgets (vs. 2001), but also experienced the most dramatic increase from 2000 to In the other size categories, budgets decreased in 2003 by about the same percentage as they had increased for Table 5. Average IT Capital Budgets ($ in Millions) Revenue Category Percent Change: 2001 vs Percent Change: 2003 vs Less Than $500 Million $500 Million to $999 Million % -8% % -18% $1 Billion or More % -19% All IDSs % -6% The median IT capital budget figures are smaller overall than the average figures, due to some very large IDSs driving the average numbers up. Therefore, the median figures may better represent the capital budgets most IDSs have. See Table 6 for the median IT capital budgets for all responding IDSs. 30 December

10 Table 6. Median IT Capital Budgets ($ in Millions) Revenue Category 2003 Median With 50 Percent of Responses Between: Less Than $500 Million and 6.4 $500 Million to $999 Million and 7.3 $1 Billion or More and 20.0 All IDSs and IT Capital Budget as Percent of Total Capital Budget Table 7 shows the average percentage of IDSs' total capital dollars that were budgeted for IT. Highlights of the findings include the following: IDSs IT capital budgets for 2003 averaged 23 percent of their entire organizations capital budgets. This represents significant increases compared with those reported in IDSs in the largest revenue category continue to allocate the smallest portion of their total capital budgets to IT (19 percent). IDSs in the smallest revenue category experienced the largest increase (37 percent) in the proportion of their overall capital budgets allocated to IT. Table 7. Average Percent of Total Capital Dollars Budgeted for IT Revenue Category Percent Change: 2001 vs Percent Change: 2003 vs Less Than $500 Million $500 Million to $999 Million 27.9% 20.3% 22.8% % 22.4% 19.5% $1 Billion or More 18.5% 16.1% 14.4% All IDSs 23.4% 19.5% 19.7% A wide range of responses were given to the question regarding total capital dollars allocated to IT even the middle 50 percent of responses fall within a wide range, as shown in Table December

11 Table 8. Median Percent of Total Capital Dollars Budgeted for IT ($ in Millions) Revenue Category 2003 Median With 50 Percent of Responses Between: Less Than $500 Million 20% 13% and 27% $500 Million to $999 Million 25% 19% and 35% $1 Billion or More 17% 10% and 21% All IDSs 20% 10% and 27% 4.2 IT Capital Budget Growth Plans Participants were asked how they expected their IT capital budgets to change in the next budget year. Table 9 summarizes their responses. Table 9. Expected Changes in IT Capital Budgets Revenue Category Increase Decrease Stay the Same Don t Know Less Than $500 Million 45.2% 16.1% 22.6% 16.1% $500 Million to $999 Million 50.0% 38.9% 5.6% 5.6% $1 Billion or More 22.2% 38.9% 33.3% 5.6% All IDSs 36.5% 30.6% 23.5% 9.4% Thirty-seven percent of IDSs expected their IT capital budgets to increase, while another 31 percent expected these budgets to stay the same. Only about one-quarter (23 percent) expected their budgets to decrease. Almost half (45 percent) of IDSs in the smallest revenue category, which reported the largest budget increases in 2003, expected their budgets to increase again in the following budget year. Nearly 40 percent of IDSs in the largest revenue group expected to decrease their IT capital budgets in the following year. 4.3 IT Capital Budget Breakdowns by Component Respondents were asked to provide a total IT capital budget figure and to allocate that spending among six different components: data processing (DP) equipment, communications equipment, software purchases, ESPs, leasehold improvements, and other capital expenses. Table 10 shows the average IT capital budgets in each capital category. Figure 2 shows the average percentage distribution of IT capital budget categories for IDSs of various sizes. 30 December

12 Table 10. Average IT Capital Budgets by Category ($ in Millions) Revenue Category Software Purchases DP Equipment ESPs Communications Equipment Other IT Capital Leasehold Improvements Less Than $500 Million $500 Million to $999 Million $1 Billion or More All IDSs % 45% Average Percentage of IT Capital Budget 40% 35% 30% 25% 20% 15% 10% 5% Less Than $500 Million $500 Million to $999 Million $1 Billion or More All IDSs 0% Software Purchases DP Equipment Comm. Equipment ESPs Other IT Capital Leasehold Improvements IT Capital Budget Categories DP ESP IDS data processing external service provider integrated delivery system Figure 2. Percentage Distribution of IT Capital Budget Categories As in previous years, software and hardware purchases comprise the majority of IT capital budgets. Combined, the two items accounted for three-quarters of the average IT capital budget in 2003, slightly more than the 70 percent they accounted for in The most interesting change in IT capital spending occurred in the area of ESPs, where overall spending dropped nearly to 2000 levels. Although ESP spending by midsize IDSs stayed about the 30 December

13 same and the smaller IDSs increased this spending by 45 percent the largest IDSs decreased their spending on ESPs by more than half (53 percent). The majority (77 percent) of IDSs had no IT capital budgeted for leasehold improvements. In addition, 88 percent of IDSs had no other IT capital expenses. In examining capital categories as percentages of total IT capital expenditures, the largest IDSs allocate less for software purchases (37 percent) and more for DP equipment (37 percent) than do other IDSs. 5.0 IT Operating Budgets Table 11 shows IDSs' average IT operating budgets, by year and by revenue category. Highlights of the findings include the following: The average IT operating budget reported by IDSs in our 2003 study was approximately $22.2 million, representing a 13 percent increase over the average budget reported in As was the case with IT capital budgets, IDSs in the smallest revenue category experienced the most dramatic average increase in IT operating budgets (vs. 2001), at 27 percent (although this was lower than their 47 percent increase in 2001 vs. 2000). Midsize IDSs continued to decrease their IT operating budgets in 2003 (by 13 percent vs. 2001) which is about the same decrease as they experienced between 2001 and 2000 (11 percent). Table 11. Average IT Operating Budgets ($ in Millions) Revenue Category Percent Change: 2003 vs Less Than $500 Million % $500 Million to $999 Million % $1 Billion or More % All IDSs % The median IT operating budget figures are smaller overall than the average figures, due to a few very large IDSs driving the average numbers up. Therefore, the median figures may better represent the operating budgets most IDSs have. See Table 12 for the median IT operating budgets for all responding IDSs. 30 December

14 Table 12. Median IT Operating Budgets ($ in Millions) Revenue Category 2003 Median With 50 Percent of Responses Between: Less Than $500 Million and 12.6 $500 Million to $999 Million and 19.1 $1 Billion or More and 40.0 All IDSs and IT Operating Budget as Percent of Total Operating Budget IDSs reported IT operating budgets averaged just under 3 percent of their entire organizations operating budgets. This represents virtually no overall change from 2001 for the entire sampling. However, the lower-revenue IDSs continued to report a slight drop in this figure, while IDSs in the higher revenue categories stayed the same or saw slight increases. Table 13 shows the average percentages and Table 14 the median percentages of total operating dollars budgeted for IT. Table 13. Average Percent of Total Operating Dollars Budgeted for IT Revenue Category Percent Change: 2001 vs Percent Change: 2003 vs Less Than $500 Million 2.6% 2.8% 3.4% -0.6% -0.2% $500 Million to $999 Million 3.2% 3.2% 3.0% +0.2% -0-% $1 Billion or More 3.0% 2.9% 2.7% +0.2% +0.1% ALL IDSs 2.9% 3.0% 3.1% -0.1% -0.1% Table 14. Median Percent of Total Operating Dollars Budgeted for IT Revenue Category 2003 Median With 50 Percent of Responses Between: Less Than $500 Million 2.7% 2.0% and 3.0% $500 Million to $999 Million 3.1% 2.5% and 3.7% $1 Billion or More 2.8% 2.4% and 3.4% ALL IDSs 2.8% 2.2% and 3.4% 30 December

15 5.2 IT Operating Budget Growth Plans Study participants were asked how they expected their IT operating budgets to change during the next budget year. Table 15 summarizes their responses. Table 15. Expected Changes to IDS Operating Budgets Revenue Category Increase Decrease Stay the Same Don t Know Less Than $500 million 51.6% 16.1% 19.4% 12.9% $500 Million to $999 Million 38.9% 16.7% 33.3% 11.1% $1 Billion or More 44.4% 16.7% 33.3% 5.6% All IDSs 45.9% 16.5% 28.2% 9.4% The overwhelming majority of IDSs (74 percent) expected their IT operating budgets to either increase (46 percent) or stay the same (28 percent). Over half the IDSs in the smallest revenue category (52 percent) expected to increase their budgets, but only 39 percent of IDSs in the middle revenue category expected to do so. 5.3 IT Operating Budget Breakdowns by Component Respondents were asked to provide a total IT operating budget figure and to allocate those dollars among six different components: staff and related expenses; hardware and software leasing and maintenance; outside services; indirect and allocated expenses; depreciation and amortization; and other IT operating expenses. Expenses in the "other" category include telephone, communication, supplies, travel and electricity expenses. As in past years, staffing and related expenses and hardware and software maintenance comprise the majority of IT operating budgets. Combined, the two items represent approximately three-quarters of the average IT operating budget reported in the 2003 study (73 percent). This represents no significant change from the portion these items accounted for in 2001 (75 percent). Outside services in IT operating budgets showed a pattern similar to that in IT capital budgets: The smaller IDSs doubled their outside services spending (102 percent) while midsize and large IDSs decreased their spending on outside services (by 42 percent and 43 percent, respectively). See Table 16 for a summary of average IT operating budgets by category. 30 December

16 Table 16. Average IT Operating Budgets by Category ($ in Millions) Revenue Category Staff and Related Expenses Hardware/Software Maintenance Depreciation/ Amortization Outside Services Indirect/A llocated Other IT Operating Less Than $500 Million $500 Million to $999 Million $1 Billion or More All IDSs Nearly half (47 percent) of responding IDSs had zero dollars allocated to the indirect/allocated category, and nearly three-quarters (72 percent) had no allocation for other operating budget items. When operating category allocations are viewed as percentages of total IT operating expenditures, the results are largely similar across IDS size categories except that the smallest IDSs spent less on hardware and software leasing and maintenance, and the largest spent more on depreciation and amortization. See Figure 3 for a summary of the average percentage distribution of IT operating budget categories. 50% 45% Average Percentage Allocated to Each Category 40% 35% 30% 25% 20% 15% 10% 5% Less Than $500 Million $500 Million to $999 Million $1 Billion or More All IDSs 0% Staff and Related Expenses Hardware and Software Maintenance Depreciation and Amortization Outside Services Indirect/ Allocated Expenses Other Operating Expenses IT Operating Budget Categories Figure 3. Percentage Distribution of IT Operating Budget Categories 30 December

17 6.0 Outsourcing More than one-third (36 percent) of IDSs reported that they were currently outsourcing at least one IT function, and close to half (44 percent) reported plans to outsource one or more IT functions in the following budget year. IDSs in the largest revenue category rely on outsourcing the most, with 44 percent of them outsourcing at least one IT function. Thirty-nine percent of IDSs in the middle revenue category and 26 percent of IDSs in the smallest category outsource at least one IT function. Respondents were asked to indicate which, if any, IT functions they were outsourcing now, and which they planned to outsource in following year. The survey offered 11 functional areas, as well as an other category. The 11 functional areas were: operations, desktop (support and installations), Web design/management, help desk, process engineering (project-based consulting), networking, application development/programming, project management office, security, data management/reporting, and CIO. See Figure 4 for the average percentage of IDSs outsourcing, or planning to outsource, various IT functions. Percent of IDSs Outsourcing 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Currently Outsourcing Planning to Outsource in Next Budget Year Entire Operations Desktop Web Design/Management Help Desk Process Engineering Networking AD/Programming Project Management Office Security Data Mgmt/Reporting CIO Other IT Functions Figure 4. Percentage of IDSs Outsourcing Selected IT Functions AD CIO IDS application development chief information officer integrated delivery system The most frequently outsourced function was operations (cited by 15 percent of IDSs) followed by desktop support/installations and Web design/management (each cited by 14 percent of IDSs). Only four IDSs reported outsourcing all IT functions. Although IDSs expected outsourcing levels for some IT functions to stay the same, they expected outsourcing of most IT functions to grow in the following budget year with the largest growth in the 30 December

18 process engineering (30 percent), operations (23 percent), networking (22 percent) and desktop (17 percent) categories. (Note: Outsourcing questions were revised and expanded for this survey, making year-to-year comparisons less feasible; as a result, comparisons to previous years were not included. These results should be used only for suggesting future directions in outsourcing.) 7.0 HIPAA Spending Respondents were asked about the amount budgeted for initiatives related to the Health Insurance Portability and Accountability Act (HIPAA) during the current budget year, and the percentage of that amount allocated to the IS budget. The average HIPAA budget reported was $871,000, almost exactly the same as in the previous year ($880,000). On average, IDSs in the smaller revenue category budgeted slightly more for HIPAA ($452,000) than did IDSs in the middle category ($444,000). Just over half (54 percent) of the HIPAA budgets were allocated to the IS department. Large- and small-revenue-category IDSs allocated roughly the same percentage to IS (46 percent and 49 percent respectively), but middle-category IDSs allocated 78 percent to the IS department. Interestingly, 25 percent of IDSs allocated 100 percent of their HIPAA budgets to IS (28 percent of the smallest-revenue IDSs, 38 percent of the middle-category IDSs, and 15 percent of the largest IDSs) 8.0 IS and Business Initiatives Study participants were asked to indicate their top three business and top three IS initiatives or priorities for the year. In presenting the results, we have grouped responses into three "tiers" based on how frequently they were cited by respondents (the first tier being those cited by more than 40 percent, the second being those cited by 20 percent to 40 percent, and the third being those cited by less than 20 percent). Clinical initiatives dominated the business issues cited a significant shift from responses in 2001 and 2000, when growth and financial improvement topped the list. In fact, growth dropped to the third tier of priorities while financial improvement dominated the second tier, mirroring the healthcare industry s overall financial plight. Among the first-tier business priorities cited: Clinical automation/improvement was mentioned by 57 percent of IDSs. Patient safety/error reduction was mentioned by 42 percent of IDSs. Among the second-tier business priorities cited: Cost reduction was mentioned by 37 percent of IDSs. Patient care/customer satisfaction was mentioned by 32 percent of IDSs. Revenue cycle improvement was mentioned by 27 percent of IDSs. Operational efficiency was mentioned by 26 percent of IDSs. HIPAA was mentioned by 22 percent of IDSs. 30 December

19 Among the third-tier business priorities cited: Employee satisfaction/relations were mentioned by 14 percent of IDSs. Facility improvement was mentioned by 11 percent of IDSs. Physician satisfaction/relations were mentioned by 11 percent of IDSs. General automation, upgrades and installation were mentioned by 9 percent of IDSs. "Expand markets served/grow network" was mentioned by 8 percent of IDSs. E-business/Internet initiatives or other priorities were mentioned by 5 percent of IDSs. Clinical initiatives also dominated IS priorities, similar to those mentioned in previous years. HIPAA, infrastructure and financial improvement comprised the second tier of priorities, and various operational issues rounded out the third tier. Among the first-tier IS priorities cited: Clinical automation led the pack by an almost 2-to-1 margin, with 79 percent of IDSs ranking clinical automation projects, such as clinical documentation and computerized patient records, among their top three priorities. Among the second-tier IS priorities cited: Automation projects concerning HIPAA compliance were mentioned by 37 percent of IDSs. With deadlines approaching, HIPAA initiatives remained in second place and gained on clinical automation. Consolidation/integration/standardization projects were mentioned by 35 percent of IDSs. Infrastructure projects were mentioned by 32 percent of IDSs. IT operational efficiencies and foundations received major attention. Revenue cycle improvement projects were mentioned by 26 percent of IDSs (again mirroring the focus on operational efficiencies, given limited revenue). Among the third-tier IS priorities cited: Core healthcare IS application projects were mentioned by 19 percent of IDSs. Ancillary/departmental automation projects were mentioned by 12 percent of IDSs, while document imaging/workflow projects were mentioned by the same percentage of IDSs. Connectivity/networking projects were mentioned by 9 percent of IDSs. E-business/Internet initiatives were mentioned by 8 percent of IDSs, a sharp decrease in this priority (compared with 23 percent of IDSs in 2001 and 32 percent in 2000). Enterprise resource planning, supply chain planning and administrative applications; enterprise master person indexes; IS organizational issues; and "other" rounded out the top three IS initiatives, collectively mentioned by 32 percent of IDSs. 30 December

20 9.0 Conclusions In light of the healthcare industry s continuing financial plight, IT budgets seemed to survive relatively intact in IT operating budgets increased by 13 percent over 2001 levels, but this boost was driven by a large increase among IDSs in the smallest revenue category (less than $500 million in gross revenue) among other IDSs, the average IT operating budget decreased. IT capital budgets received a larger share of a smaller pie as absolute dollars decreased by 6 percent, but the IS share of the total capital budget increased by 20 percent. IT budgets are expected to stabilize somewhat, as 60 percent of IDSs reported that they expected to increase or maintain their IT operating budgets in the following year, and 74 percent of IDSs expected to maintain or increase their IT capital budgets. Most of the reported IT budget "growth" continued to occur among IDSs in the smallest revenue category, as their IT capital budgets increased as a percentage of the total capital budget by 37 percent (although they decreased in actual dollars by 8 percent), and their IT operating budgets increased by 27 percent on average. In addition, 45 percent of these smaller IDSs expected their IT capital budgets to increase and 52 percent expected their IT operating budgets to increase in the following budget year. Although regaining and maintaining financial health were top IDS priorities in previous years, priorities in 2003 shifted toward clinical quality. Despite limited revenue growth, IDSs are funding IT investments to improve quality of care and operational efficiency. 30 December

21 Appendix A: Acronym Key AD BPR CIO DP ESP FTE HIPAA IDS IS IT application development business process re-engineering chief information officer data processing external service provider full-time equivalent Health Insurance Portability and Accountability Act integrated delivery system information systems information technology 30 December