Kristi MatusWe hear it all the time: The United States is wasting an enormous amount of money on health care. Numerous factors are pushing up prices, including a broken fee-for-service model that encourages unnecessary consumption and industry consolidation that leaves patients and providers with less choice. But an overlooked culprit is the cost of healthcare IT. Hospitals and health systems have failed to adapt to a world that has become interconnected. They are running technology that cannot meet modern demands and is hampering their overall missions due to high costs.

Despite heavy technology investment—to the tune of $35 billion, thanks to the HITECH Acta—American health care still has an IT backbone that lacks the basics. Because of government incentive programs, hospitals have largely implemented electronic health records (EHRs), but 94 percent of physicians have observed redundant tests and labs due to inadequate access to patient records. And 87 percent identify technical shortcomings and incompatibility of EHR systems as the lead barrier to interoperability.b The majority of healthcare IT in use in our country’s hospitals and health systems was never designed for the Internet age, and it struggles to perform the way we need it to.

Ten years after a mad rush into the digital world, hospitals are stuck with legacy software that is hardly any improvement over paper charts as a means for connecting care for patients. The cost to run these systems can be ruinous. Hospitals such as Wake Forest Baptist and Memorial Hospital at Gulfport have suffered bond rating downgrades and experienced shrinking access to capital markets.c Others, such as Bronson Healthcare Group and UNC Health Care System, have attributed weak financial performance to higher operating expenses and lower revenue associated with new IT system implementations.d These investments have created inefficiencies that drive up costs and weaken healthcare organizations.

Reimagining Total Cost of Ownership

To shore up the strength of our healthcare institutions, CFOs need to redefine the prevailing model used to calculate total cost of ownership (TCO). They should adopt a cost calculation that accounts for labor force productivity and considers the opportunity costs of an underperforming system.

The popular concept of TCO originated in tech and traditionally has encompassed hardware, implementation, licensing, software upgrades, training, and security. But these costs presume the necessity of owning and operating a technology, when in fact many technologies can easily be administered remotely. In fact, next-generation cloud-based platforms can slash IT spend in half.

Ten years ago, slow, inefficient software was the best in a host of bad options for hospitals. That business model has since experienced substantial disruptive innovation. Cloud-based vendors offer service-backed delivery systems founded on the notion of paying for results. Compensation is tied directly to outcomes such as increased collections, coordinated care, and ability to meet quality benchmarks.

CFOs should love the cloud because it negates the need for fixed asset investments and offers predictable operating expenses that scale easily as the industry transforms. Rather than building IT infrastructure, hospitals benefit from a wrap-around service component that is more efficient than anything run in-house. IT teams that traditionally stay busy running data centers can focus on tasks that drive more value, such as application development and customer features.

Proven Results

Although unpopular among hospitals, the cloud-based model has a proven track record in the pioneering corners of health care. Squeezed by tight budgets and mounting demands, small outpatient practices were early adopters of cloud-based EHR and practice management systems. Such technology allowed those practices to reallocate scant resources and bypass the capital expenditure required to purchase traditional software. Outsourcing IT infrastructure and software upgrades to a vendor-hosted cloud network freed up staff focused on all aspects of billing, collections, and clinical document management to perform more high-value tasks. Savings could be applied to growing clinical staff and to brick-and-mortar expansion.

These practices transitioned from technology maintenance to technology integration. And they haven’t looked back. Although cloud-based vendors first evolved in response to markets with less complex needs, they are quickly developing the capabilities necessary to serve health care’s most demanding provider organizations.

With the health IT industry forecast to reach $31.3 billion by 2017, spurred on by an increasing demand for clinical and administrative efficiency, we simply cannot afford to continue buying the same failing tools.e Industries from finance to hospitality to education have embraced the lightweight, nimble approach of cloud computing to scale, grow, and serve customers. For that matter, factories long ago embraced energy savers, cheaper materials, and supply chain innovations to keep assembly lines whirring. The same approach should apply to hospitals’ bedrock tools: their IT.

Kristi Matusis executive vice president and chief financial and administrative officer, athenahealth, Watertown, Mass.


a. Thune, J., et al., “Where Is HITECH’s $35 Billion Investment Going?Health Affairs blog, March 4, 2015.

b. Epocrates, Interoperation Research Study, April 10, 2015.

c. Daniel, F., “Wake Forest Baptist’s Bond Rating Lowered by Standard and Poor’s,”Winston-Salem Journal, Nov. 5, 2014; and Fitch Ratings, “Fitch Affirms Memorial Hospital at Gulfport’s (MS) Revs at ‘A’; Outlook Revised to Negative,” March 11, 2015.

d. Moody’s Investors Service, “Moody’s Revises Bronson Healthcare Group’s (MI) Outlook to Negative; A2 Affirmed,” Dec. 8, 2014; Moody’s Investors Service, “Moody’s Revises University of North Carolina Hospitals’ Outlook to Negative; Aa3 and Aa3/VIMG1 Affirmed,” March 21, 2014.

e. Monegain, B., “Big Growth Forecast for Health IT Market,” Healthcare IT News, Dec. 30, 2013.

Publication Date: Tuesday, July 14, 2015