Hospitals, practices doubling down on IT spending. Here are their top priorities for tech investments

Healthcare providers continue to spend on health IT and software despite current economic uncertainty.

As hospitals, health systems and medical practices try to recover from a global pandemic, these organizations are now regrouping, looking to be more focused with their investments and streamlining their existing tech stacks, according to a new report from Bain & Company and KLAS Research.

"Provider organizations, regardless of size or sophistication, are emerging from the pandemic and taking stock of the software solutions they’ll need in the long term and determining where and how to invest. As part of this reflection, many are seeking to better integrate new solutions and rationalize vendors," Bain & Company and KLAS analysts wrote in the report.

Some 45% of providers accelerated software investment over the past year, with only 10% decelerating their spending.

Another takeaway: Of those accelerating investments over the past year, nearly 80% cite labor shortages, inflation concerns or specific organizational situations, such as M&A or change in leadership, as the top catalysts spurring new investments.

In the short term, clinician shortages and wage inflation are driving demand for solutions that improve productivity and alleviate labor needs, including technology that automates administrative tasks, the organizations noted.

During the past two years of the COVID-19 pandemic, providers took two different approaches. Larger, urban organizations with a more innovative orientation accelerated healthcare IT investments during the pandemic. Citing the challenges posed by the pandemic they focused on telehealth, clinical systems and clinical decision support, according to the organizations

Smaller, rural organizations with tighter budgets tapped the brakes during the pandemic, balancing investment priorities with financial pressures. Many of these providers have fallen behind on pre–COVID-19 investment road maps and are struggling to navigate an explosion of vendor offerings, the report authors wrote.

Software is now a top five strategic priority for nearly 80% of provider organizations and a top three priority for almost 40%. Concerns about the macroeconomic environment are having an impact on investment plans. For now, though, the report authors see few signs of a broad-based slowdown on provider software road maps.

Over the next year, more than 95% of providers expect to make new software investments, with one-third planning significant new investments. Roughly 35% of providers say that because of the current environment, they plan to spend more than usual over the next 12 months as they seek productivity and efficiency improvements to address rising margin pressure and labor tightening.

About 30% say that they will likely spend less than they would in more favorable conditions over the next year, according to the report. 

Overall, big areas for investment include revenue cycle management, patient intake and cybersecurity, the report found. 

Revenue cycle management software is critical in the current environment given the direct link with cash collections as well as the labor-intensive nature of revenue cycle processes, the authors note.

Cybersecurity continues to be a top priority as healthcare organizations are increasingly in the crosshairs for cyberattacks. From 2018 to 2021, the number of data breaches reported by providers to the the Department of Health and Human Services' Office for Civil Rights has nearly doubled for incidents impacting 500 or more medical records. Additionally, provider data breaches are getting more expensive.

Regional health systems, free-standing hospitals and mental health providers are especially focused on security and privacy investments, especially in areas such as cybersecurity, Internet of Things security and patient privacy monitoring, the author note.

Clinical systems remain a top investment priority, with providers citing electronic medical records as their primary investment area. Most providers are planning investments focused on optimizing existing EMR systems to streamline provider workflows and boost productivity.

Telehealth also continues to be a critical strategic priority for most organizations. Large national health systems view telehealth systems as integral to care delivery and are looking to bolster existing video consultation/collaboration platforms and add enhanced telehealth capabilities, the authors wrote.

Some large providers appear to be reconsidering the virtual care platforms offered by their EMRs. This suggests that some large EMR players, particularly Epic, are improving telehealth platforms that were insufficient for providers during the early days of the pandemic.

Competition in the IT market ramps up

The report authors expect changes in how providers plan to make software investments over the next year. More than 50% of providers are struggling with the flood of offerings in the market: They cite concerns about missing high-impact new solutions or simply feeling overwhelmed by the number of offerings to evaluate.

Hospitals and medical practices are increasingly streamlining bloated tech stacks and looking to their EMR vendors and other existing vendors for new solutions before evaluating new vendor offerings, according to the report. Around 63% of providers are making plans to streamline the number of third-party software solutions in their tech stacks over the next year.

This all adds up to rising competitive pressure in the health IT market with startups, big tech and leading EMR players all vying for a piece of the market.

Big tech players Amazon, Microsoft, Google and Apple have been pushing into healthcare in recent years with targeted offerings and investments. These companies have focused on building upon core competencies—such as cloud services, data storage, customer relationship management, consumer devices and wearables—to fill in the white space rather than going head-to-head with entrenched incumbent enterprise software providers.

In the past few years, though, big tech also has been investing in healthcare capabilities further afield from core capabilities, especially via M&A activity such as Amazon's $3.9 billion deal for One Medical, Oracle shelling out $28.3 billion for Cerner and Microsoft picking up Nuance for $19.7 billion.

"While big tech appears increasingly serious about pushing into healthcare, we believe that the threat to traditional provider software players is minimal in the immediate term, especially when looking at providers’ top 10 strategic investment priorities for the next year in which big tech’s current positioning lags market leaders," the authors wrote.

At the same time, EMRs, especially Epic, are expanding their offerings. Epic, for example, has aggressively pursued product adjacencies to elevate its value proposition beyond core EMR, the authors point out.

Provider software companies also face pressure from health tech startups. "While uncertainty surrounds the second-half 2022 funding environment, we believe early-stage players will remain a formidable force in the provider IT market. Incumbent vendors would be prudent to keep tabs on early-stage players with disruptive potential and stay active in exploring partnership or acquisition opportunities," the authors wrote.