Trends in Healthcare: Strategic Cost Cutting

by Darin Brannan
Co-founder and CEO

This is the fourth post in a series on Trends in Healthcare by Darin Brannan. See the first post on the trend toward consumerism in healthcare and the second post on healthcare mergers and acquisitions. The third post on securing healthcare IT startups is here.

I was in a conversation with my CFO this week about managing budgets in this time of COVID, and I’m sure you as fellow C-suite executives are placing additional scrutiny on your budgets as well. Many of the healthcare organizations I’m talking to are finding themselves looking for places to reduce spend.

This recent article in Smarter with Gartner offers up some great advice about avoiding cost cutting traps. Cassio Dreyfuss, VP Analyst at Gartner says, “Pressure from an unstable and uncertain business and economic environment has led CIOs to embark, often blindly, on emergency cost-cutting programs. But the savings can be less than satisfying, and the impacts on the business can be negative.” Dreyfuss urges businesses to consider value and risk when making cost-management decisions, saying this cost-optimization approach will lead to long-term value and immediate spend efficiency.

Managing Risk

The most important thing to keep front of mind in these times is how to reduce risk, not just how to reduce costs.

Healthcare is under attack. I asked my CFO what was front of mind for him this year and he said risk management, not finances, though we are evaluating every dollar allocated, every day. As much as we all want to cut costs, we have to be thinking about risk – risk to the business, risk to financial forecasts, risks to productivity. Of course, the greatest risk to most of you reading this is a security incident where your PHI is compromised.

In budget prioritization, you want to look beyond the numbers to see if the things you are cutting will increase your risk profile. In 2020, we’ve seen an onslaught of ransomware that is simply unprecedented. Attacks doubled in Q3 and healthcare was the primary target. You can read more about that in this post from our Chief Privacy and Security Officer and ClearDATA Founder, Chris Bowen, where he shares that ransomware is currently claiming a new victim every 10 seconds. Head over to the OCR breach portal for 2020, and you’ll need to keep scrolling, and scrolling. It’s staggering, and so are the fines being levied against healthcare organizations who didn’t think they’d ever find themselves on that list. Add to this the fact that while under a ransomware attack, many systems have to go offline, halting your ability to serve your customers, members and patients. The outcomes can be disastrous. So before you go cutting budgets, take a hard look about whether that dollar saved is going to cost thousands in risk later.

Outsourcing a Piece of Your IT

Think about the resources on your team. I am not suggesting you close your IT department. But there are times where it makes fiscal sense to outsource some of your IT spend to a purpose built, trusted vendor so you can gain broad expertise at a lower cost than funding one in-house position. With mid-enterprise, it’s uncommon to have your own cloud certified engineers, solution architects, DevOps and security experts and other skills needed for your organization to succeed in the cloud and gain the advantages it offers including cost optimization. When you partner with the right vendor, they can ‘lend’ you their experts as fractionalized talent vs the cost trade-off for picking one of those skill sets to bring in house. Please choose that vendor carefully. I would recommend requiring HITRUST certification, and premier or elevated cloud partner status as table stakes in order to get the most up-to-date talent and security mindsets at the same time.

Getting a Holistic View of ROI

A lot of CFOs, CIOs and CEOs are seated around board tables (or zooming from kitchen tables) and looking to cut vendor spend. I’m no different. What we are doing here is digging deep into the ROI evaluation and asking ourselves some honest questions about build vs buy. You can cut a vendor whose service or solution you still need, leaving you with the daunting task of building it as well or better, faster and at the same price. It’s quite likely that will be a failed experiment where you find yourself managing scope creep, and unexpected costs. And at the risk of repeating myself, reducing risk should be a factor in your ROI evaluation for every decision. For example, a lot of people underestimate what goes into making cloud environments ultra-secure and HIPAA compliant, with automated safeguards, visualizations, constant monitoring and user-friendly dashboards so you can measure what matters. A significant number of our enterprise customers came to us because they did go DIY first and found the strain on time and resources ridiculously daunting. DIY made it hard to focus on their business objectives and what differentiates them in a competitive market.

Think about ROI, think about risk, think about buy vs. build and the opportunity costs of choosing to DIY or outsource activities that lead to ROI.

Investing in the Technology You’ll Need for the Road Ahead

As a follow up to buy vs build, now is the time to scrutinize every technology investment to see if you are building legacy environment debt or investing in technology that will give you agility gains, scalability gains, and performance gains now, and in the future. If you are looking at a vendor that can provide agility, scalability and increased performance, that might be a good investment. This kind of agility and scalability are some of the irrefutable advantages of the cloud. A good partner can talk to you about how to finance the cloud by switching your CapEx expenses for OpEx, investing in your future instead of your past as you move away from legacy systems. Here’s our guide on that topic.

And while it might be apparent, if you have a rank order list of expensive items that are under consideration for cuts, don’t lean in on trimming the cost of high-performance secure internet and other productivity tools for your employees. It’s easy to look at some large numbers and assume a sweeping 15% cut across all line items will solve your woes. If you take away your employee’s power tools, productivity will suffer, and risk will rise. That’s bad for business. Look at other areas such as fringe applications, travel, entertainment and other high dollar areas first.

Choosing Strategic Platforms vs One Off Solutions

And for you providers who got burned by IT vendors in the last decade and now have interoperability challenges, I understand you now want to demand more from any one vendor. At ClearDATA, we have a full Healthcare Security and Compliance Platform of solutions and services that enables our customers to release some of these stacked, smaller out-of-the box piecemeal solutions with unique pricing plans that are hard to manage. Work to get closer to the single pane of glass and one strategic partner taking a larger role and you’ll often find it’s easier to predict and maintain your spend.

In closing, let me acknowledge that I know this has been a tough year on people, processes and technology and all of our budgets are being scrutinized as never before. We’re all having to make some tough decisions, just make sure they’re the right ones to grow your business rather than take away what will make it stronger.

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