Technology strategy and the balance sheet 3 points to consider: what are your strategic objectives for your technologies? How are you managing them? And how are you funding them? You should have a ready answer for all these questions

Healthcare Financial Management, May, 2005 by David J. Waldron

Technology. It's a topic that can stir mixed feelings in a healthcare CFO--excitement at the opportunities it presents, perplexity at the challenges of acquiring and maintaining it, and dread at the prospect of failing to meet its demands on the organization.

If you are a CFO, there's probably good reason for you to have these feelings: In most hospitals, you are expected to take a lead in managing your organization's technology assets, including deciding which technologies should be acquired and how they will be funded. In simplest terms, you need to focus your attention on three areas of concern:

* Strategic issues

* Technology life- cycle management

* Balance sheet issues

Strategic Concerns

Effectively managing technology necessarily begins with strategic planning that is focused primarily on one fundamental question: What is the strategic purpose of technology for our organization? That purpose should be explicitly stated in your organization's strategic business plan before you even begin thinking about how you will invest in technology and how those investments will be reflected on the balance sheet.

It's likely that the role you identify for technology will be similar to that identified by most other hospitals. Although every hospital has its own unique strategic business plan driven by demographics, local market conditions, and the vision of its leadership team, many hospitals share the same strategic view of technology as a means to differentiate themselves from the competition.

Indeed, technology investments to fulfill this role have driven a huge demand for capital that will last throughout this decade and beyond, especially given the sheer abundance of opportunities to leverage technology for this purpose. For example, a substantial investment in technology can enable a hospital to achieve the following strategic objectives:

* To be the local low-cost provider as a result of cost efficiencies gained by fully implementing enterprise resource planning

* To be the first hospital with a remote-access electronic health record that links with referring primary care physicians

* To build an unequalled local oncology practice through adoption of new radiation therapy technologies

* To become the market leader in women's health services across the continuum of care by investing in the best technology to support women's health care

But when pursuing such a strategy, it's not enough today to simply select, acquire, and implement the IT solution and move on. Medical technology and IT solutions that enable marketplace differentiation are evolving at an unprecedented pace. The focus on EHRs and the drive to digitization to improve quality outcomes and eliminate clinical errors are just two areas that have contributed to a frenzy of innovations and new-product introductions in the IT industry. The 2005 annual meeting of the Health Information Management Systems Society saw an unprecedented number of IT exhibitors and a plethora of applications and solutions. Given this rapid rate of change and abundance of new and evolving products, it is critical also to have a strategy for managing the life cycles of your technology investments.

Technology Life-Cycle Management

Technology life-cycle management should be applied to all technologies within the hospital that are either critical to the strategic plan or susceptible to rapid obsolescence. Obsolescence in this sense means the end of the useful working life of the asset. It is a relative term that has a different meaning to each hospital. For example, a 16-slice computed tomography scanner might become obsolete in a university teaching department within two years, yet it might have many more years of useful working life in a community hospital or trauma facility.

Rapid change in IT technology makes this area a good place to start. The need for managing the life cycle of IT applications will become increasingly important as technologies such as EHRs and picture archiving and communications systems evolve, connectivity standards are set, and fully functional integrated hospital enterprise resource planning systems become commercially available. It's likely, therefore, that development of technology life- cycle management programs for such IT assets will become a trend.

But your program should not be limited to IT. An effective technology life-cycle management program should be charged with managing all of your institution's technology investments. New technologies are coming to market in the medical technology environment almost as rapidly as within IT. If not proactively addressed, the rapid obsolescence of medical technologies due to their fast-turning life cycles could have a severe financial impact on your institution.

Program drivers. The drivers of the technology life-cycle management program should be the same as the drivers in the strategic business plan. Therefore, to achieve your hospital's strategic goals and maximize return on its investment in technology, your program should focus first and foremost on managing the working life cycle of those IT and medical technology assets that support the strategic plan. Effective management means continually looking for opportunities for expansion, extension, refreshment, and ultimately, replacement.