Shifting CapEx to OpEx in Healthcare IT

Shifting CapEx to OpEx in Healthcare IT

Capital expenditures (CapEx) are the star of the show when hospitals open gleaming new centers focused on heart disease, cancer, or children’s health. Glossy marketing boasts state of the art facilities and top talent revolving around person-centered care. But seldom do IT expenditures that fall into the CapEx bucket prompt anything more than the expectation of being reliable. When IT monies are used as capital expenses, they are used for hardware, purchased software applications and in-house infrastructure. They are bets hedged on projected demand and technical developments yet to be seen. While CapEx offers neat spreadsheets marking depreciation over time and predictable tax deductions, it also has a way of becoming clunky, outdated, and underused. Additionally, the large up-front investment siphons funds from other operational areas which also have competing, mission-critical objectives.

Projecting Future Needs

Navigating projected healthcare data storage needs is much like sailing on a moonless cloudy night without a compass. One may think they know where they are headed. They have a clear idea of where they were when they raised the sails and pointed the bow. But when rocks hit the hull the entire ship is in danger of capsizing.

The rocks in healthcare data storage are plenty, and hidden in the murk and mist of emerging technologies, legislative mandates, medical record redundancy, HIPAA diversity requirements, ePHI long-term storage space, DICOM imaging files expanding at ever increasing rates, and a growing populace.

In-house, privately managed data storage trades projected peak needs for underused space. There is an opportunity cost to buying more than an organization needs right now for what it might need in the future. Upon initial installation, a new, costly setup may only use 10% of its potential on a regular basis, and 30% during peak usage. There is the expectation that demand will catch up with capability for ideal usage statistics. But, in the meantime, the equipment must be maintained and personnel employed to manage it. When surging demand overloads servers, the expectation of reliability can be shattered when systems can’t keep up. Such a fragile infrastructure can penalize patient care, staffing experiences, and a hard-earned reputation for superior service.

Using OpEx to Increase Agility

According to Deloitte’s 2017 Global CIO Survey, over half of healthcare CIO’s expect to increase their healthcare budgets, which currently average 3.5% of revenue. How those IT monies will be distributed can make or break business operations. Their 2018 CIO Survey also points out changing expectations for CIOs, a position moving from being centered on operations to one that is expected to shape an organization’s digital future.

Such leadership is built around a vision for driving growth and revenue as well as transforming an organization’s business operations. Healthcare, notoriously slow to steer into change, offers plenty of opportunity for savvy healthcare management to seize on technological advantages that increase the bottom line and that less agile competitors may be forced to pass over.

This agility can be centered on an IT financial strategy that shifts capital expenditures into operational expenditures that are deducted on a yearly basis. Instead of using large slices of the budget pie to fund one-time improvements, healthcare organizations can use slivers of the budget for immediately relevant improvements based around publicly hosted cloud storage.

The benefits to this strategy are many.

Moving to subscription based cloud storage increases flexibility.

The most obvious source of flexibility is in on-demand storage. Organizations can use what they need right now, and have the ability to scale up storage immediately. When demand surges, the cloud storage provider can free up dedicated space as needed. Even when storage demands are more predictable, space is not wasted on idle servers warehoused on the health care facility’s dime.

Healthcare data continues to grow at exponential rates.

Advances in imaging and the rise of artificial intelligence in reading and sorting data sets mean that there is more to store every year. HIPAA legislation dictates storage requirements, including archival data. These data storage responsibilities are not going to lessen or plateau anytime soon. Using a cloud storage provider takes the uncertainty out of prepaying for costs that won’t manifest themselves until five years into the future.

Positioned for new technology.

The flexible architecture of Infrastructure as a Service (IaaS) means more than securing responsive data storage. Online patient portals, shared files between providers, and financial applications are examples of using Software as a Service (SaaS) with cloud hosting and instant provisioning. But what about XaaS–everything as a service? It may sound far fetched as a total healthcare solution, but so did most of today’s technology. Positioning an organization to be ready for these developments is a competitive advantage.

CapEx avoidance is real.

Moving to an OpEx state of mind means shifting more than just where resources are housed and how you pay for them. For example, when using a hosted instance of an EHR, an organization saves on facilities, cooling and electricity, purchasing new hardware, and personnel expenses that would have been necessary previously. Transitioning from expensive staff laptops loaded with software, encryption, and needing periodic imaging to cloud-based devices like Chromebooks saves hundreds of dollars per machine. These savings can add up to tens of millions of dollars for large organizations.

Manage ROI.

When organizations invest large amounts of money upfront for improvements, measuring return over time can be sticky and uncertain. But when treating healthcare IT expenses as an operational expense with monthly or quarterly subscription fees, savings or returns can be quickly calculated. This makes adjustments more timely with fewer wasted resources.

Healthcare organizations considering moving some IT expenditures from capital to operating expenses should consider the total cost of ownership (TCO) for each resource. This process includes calculating the hard and soft savings of each alternative as well as the ROI. Hard savings are the numbers that show up on a spreadsheet. Soft savings are harder to quantify, but should still be assigned a value in the cost matrix. Productivity, response time, employee and patient satisfaction, and cultural friction when adapting to change are all components of soft savings and affect the real, felt value of these changes to the people who will use them most.

Healthcare organizations face a bottom line under attack from rising costs, government mandates, increased competition, and more discriminating customers. IT managers and CIOs have to squeeze value out of equipment that has high obsolescence turnover rates while managing burgeoning storage needs and disparate software applications, all while remaining HIPAA compliant and maintaining data security.

Cloud storage solutions can lay the foundation for nimble responses to these current situations and ones yet to come. Zulucare specializes in healthcare cloud storage solutions that are engineered to each organization’s individual challenges. Our dedicated professionals approach every client with a solutions based mindset built upon years of experience creating successful technology strategies. Are you ready to see what Zulucare can do for your organization? Contact us to find out.

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