Enterprises across all verticals have been slow to adopt cloud-based enterprise resource planning products. It is a market “in transition,” according to Gartner’s latest ERP market guide, with fewer than 5 percent of enterprises hosting operational ERP deployments in the public cloud. Healthcare organizations are no exception. As they increasingly consider their ERP needs, however, they increasingly look to the cloud instead of on-premises products.
“I want to get out of the data center business and get into the public cloud — and then into the private cloud,” says David Chou, chief information and digital officer at Children’s Mercy Kansas City, which is in the process of completing its ERP implementation. “The vendor community is moving that way. It creates speed,” he says. “It lets them scale and be agile. It offers flexibility that you don’t get in on-premises software.”
With ERPs, Providers Know the True Cost of Care
The term “enterprise resource planning” refers to the integrated, real-time management of core business processes such as cash flow, payroll, capacity planning and purchasing. For hospitals and health systems, ERP systems help eliminate financial data silos, as these organizations have traditionally managed revenue (from patients and insurance claims) and expenses (capital, labor, supply chain and so on) using disparate software systems.
In many cases, competing business priorities kept hospitals from implementing an ERP system. A 2016 Black Book survey found that fewer than 30 percent of hospitals had an ERP system in place. Investments in electronic health records, cybersecurity, the transition to ICD-10, population health management and analytics were all named as a higher priority than ERP, according to the survey. While 30 percent seems low, it is not far from average: Software Advice recently found that only one-third of enterprises across major verticals use an ERP system, with another 44 percent using disparate systems.
Healthcare’s ongoing shift to value-based care has put pressure on hospitals to better understand the true cost of delivering care, whether it’s per individual episode of care or per disease state or diagnosis. This need for better insight into the cost of care, coupled with the obsolescence of the ERP systems that many hospitals had in place, has triggered interest in cloud-based ERP systems.
“The back office has been neglected, but it’s come to the forefront now, and there’s a big influx of investment,” Chou says. “The back office is just as important as the EHR.”
Organizations such as Children’s Mercy have several motivations for implementing an ERP system, Chou says. They may look for opportunities to improve supply chain efficiency and staff productivity, especially at times such as flu season when hospitals see a high volume of patients. They may reevaluate operating costs, especially if executives are considering a transition to value-based business models.
ERP systems also support organizations that are in the process of merger, acquisition or affiliation, says Mary Kilmer, executive director of Oracle Healthcare.
“A cloud-based holistic platform based on a single data model across finance, supply chain and human resources supports this emerging operating model and the assimilation of new entities with embedded cross-operational best practices,” Kilmer says.
Cloud-Based ERPs Support the Future of Healthcare
Chou notes that cloud-based ERP systems from vendors such as Oracle, SAP and Workday are fairly new to the market, regardless of vertical. As a result, vendors face the challenge of making these products operational for clients currently using on-premises systems.
“They’re on the decision-making cusp. They’re asking, ‘When do I go to the latest version, and is it ready for me?’” he says.
One way that vendors are addressing this challenge is to support more strategic analysis in addition to traditional outcome management, Kilmer says. Such analysis can include an organization’s Medicare cost-to-charge ratio, its costs and margins for individual service lines, and the relationship between care costs and various quality metrics.
“Analytics need to not just tell you what just happened, but what is happening now, and predict what will happen next,” Kilmer says. Embedding a range of technology into ERP systems, from machine learning to blockchain to chatbots, can further support organizations’ analytics efforts, she adds.
The biggest motivation for a move to a cloud-based ERP system, though, is to make an investment with an eye to the future.
If you have an older, on-premises product, Chou says, “You have to do something to be current — and the only product that you can buy that’s future-proof is on the cloud.”