Forging core strength: New Jersey hospital uses fully integrated business system to improve financial management

Health Management Technology, June, 2004 by David Dyer

Challenging financial conditions continue to plague the healthcare industry--most notably, declining reimbursements, costly labor shortages and rising operating costs. These financial pressures collectively shrink already tight operating margins and test the viability of many healthcare organizations.

Somerset Medical Center, a nonprofit community teaching hospital based in Somerville, N.J., had legacy systems with outdated processes that limited access to the timely, detailed data which managers and executives need to make critical cost-management decisions. To improve financial management and streamline complex, manual tasks, we needed a fully integrated system to enhance the efficiency of our core business processes and optimize our assets.

Islands of Information

Somerset Medical has 1,800 employees, 355 licensed beds and net revenue of $170 million. In early 2000, we met minimum Y2K compliance issues, but had not invested heavily in new technology in more than a decade.

Our hospital had a legacy materials management system with a proprietary design and database arrangement. Materials, finance and HR/payroll data were housed within three separate databases, making it difficult for users to integrate pertinent data with the general ledger. A financial analyst had the daily task of trying to reconcile information within these systems. Irreconcilable data created friction between departments and resulted in a $1 million discrepancy between the general ledger and the materials system. Another factor negatively impacting our bottom line was an annual supply cost growth of nearly 17 percent.

Users also were dissatisfied with the functionality of our legacy systems and manual, paper-based processes. For example, we relied on the IT department to print "green bar" financial reports. Finance managers would then break the reports apart and send them to department heads' in-boxes, where they would sit for weeks. Creating reports was difficult, because the financial applications were spread among three vendors with separate technologies and different user interfaces. Users had no virtual desktop or other method to combine the data. As a result, we relied heavily on paper reports. Because the reports did not tie into each other, managers and directors, who had little confidence in what they were seeing, would sometimes question the data's integrity.

Integrated Efficiencies

In 2000, we began to lose vendor support for our materials management system, which was being phased out. We needed to either upgrade that system or replace it. In choosing the latter course, we went one step further and decided to overhaul all of our applications.

An evaluation team, composed of our chief financial officer, managers from various departments and me, initially reviewed several vendors and combinations of vendors in a formal evaluation process. As a community hospital, we quickly eliminated several vendors for having industry reputations of being too costly or having systems that were too difficult to install.

Eventually, our options came down to St. Paul, Minn.-based Lawson Software and another reputable vendor. We then conducted product comparisons and system demonstrations through an organized product evaluation. We felt Lawson offered a true single-supplier solution and our best option to help us improve our financial management by centralizing core business systems and eliminating complex interfaces.

Multiphased Implementation

Somerset Medical took a two-phase approach to rolling out the integrated Lawson system. Phase one focused on replacing the core business systems: financial, materials and HR/payroll. Phase two focused on adding business intelligence capabilities, including planning and analytics applications. Despite the changes involved in moving to a completely new system, we encountered very little internal resistance. This was due, in large part, to the financial commitment and support from our board. Furthermore, the dissatisfaction that end-users had with our legacy system made them willing partners to try a new approach.

We contracted with Lawson in October 2000 for the technical piece of the installation and worked with third-party consultants on the actual implementation. The consultants helped us with building and testing the applications, as well as with some business process redesign work. They also assisted with training super users: departmental staff who received an unusually high level of knowledge so that they, in turn, could train others in their departments and be the points of contact when problems or questions arose. The super users and our information services staff attended extensive classroom training off-site.

We went live with the financial and materials applications in June 2001. We delayed implementation of the HR system until April 2002, so we could adequately test some new HR policies that we initiated in late 2001. Last year, we began implementing phase two with several planning and analytics applications, including proactive notification, enterprise reporting and Web-based portals. We expect to complete phase two this winter.