New tech, operating challenges pushing providers to spend more on IT, software

Healthcare providers have upped their spending on IT and software, a shift leaders said is driven by the new technologies, labor challenges and other financial pressures on their organizations, according to a new report.

Among 201 provider executives polled by Bain & Company and KLAS Research in June, 56% said software and technology were among their top three strategic priorities, compared to roughly a third of respondents the year prior.

The shift in focus translated to almost 80% saying they had increased their spending in this area over the past year and about three quarters saying they expect the spending growth to continue across the coming 12 months, per the report. Respondents from academic medical centers and larger hospitals and health systems indicated stronger increases in future spending.

Bain and KLAS found that the providers most often cited tech investments in areas with clear and quick returns on investment, such as revenue cycle management and clinical workflow optimization. Behind these two were investments into technologies targeting stronger patient engagement—though IT infrastructure and data platforms/interoperability were high on the list for physician groups and academic medical centers, respectively.

"Increasingly, healthcare technology is helping providers improve outcomes, engage patients, optimize finances, and enhance operations—which is driving increased spending on IT and software," Adam Gale, CEO of KLAS Research, said in a release. "Vendors are offering better products and services—though improvement is still needed in some key areas. Providers are getting better at integrating new solutions into their existing IT, training and supporting their clinicians to succeed with technology and utilizing technology to meet their clinical, marketing and business goals."

Leaders said they generally tend to keep their tech stacks narrow when building out due to cost and interoperability hurdles. Specifically, 81% said their organization would prioritize existing vendors for new IT and software spending, and 79% said they would first tap their electronic health record vendor for new tools.

“This trend has intensified since 2022, helping Epic, in particular, to grow its market share to more than 60% of total U.S. hospital net patient revenue,” Bain and KLAS wrote. “While respondents are open to look elsewhere if existing vendors lack a solution or have a significant functionality gap, tight EHR integration remains a key purchasing criterion for all healthcare providers evaluating IT solutions.”

The groups’ report also updated numbers from earlier this summer on health system executives’ enthusiasm—but limited preparation—for generative AI technologies.

About 70% of the latest report’s respondents said they believe AI will have a greater impact on their organization than during the year prior.

"As AI moves out from the silos of the IT department and into the C-suite agenda, providers are accelerating their investments in IT and tech solutions and looking to streamline their vendor lists," Eric Berger, a partner in Bain's Healthcare & Life Sciences practice, said in a release.

Still, only 6% said they have a generative AI strategy in place, though “this number is expected to climb tenfold in the next year” with academic medical centers leading the charge, they wrote. The most frequently cited concerns among those academic centers were clinical risk and regulatory considerations, whereas smaller organizations more often pointed to unclear benefits, lack of technical expertise and resource constraints.

"AI has the power to transform many processes and workflows,” Berger said. “However, this shift hinges on the technology's ability to demonstrate productivity gains in real-world applications without increasing clinical risk. The best vendors will offer AI and other technologies that create clear returns to providers and help mitigate structural challenges facing the U.S. healthcare industry."

Generative AI has been a hot spot of health industry discussion and dealmaking over the last few months; EHR giant Epic, for instance, recently kicked off a collaboration with Microsoft-owned Nuance to integrate a ChatGPT-powered app into its software platform and already has systems like Stanford Health Care, UC San Diego Health, UNC Health and UW Health in line to be early adopters.

Payers could also stand to benefit from automating call center interactions, pre-authorization, claims denials and appeals—though, much like the provider space, such rollouts still carry their fair share of risks.