Dec 04 2020

Does Your Healthcare Organization Need Consumption-Based IT?

A use-based payment model for cloud and other technology solutions can save time and money, allowing teams to focus on strong care delivery.

As healthcare organizations work to cut costs and deliver services amid shrinking revenues and high patient traffic during COVID-19, leaders might identify where scalable, pay-as-you-go IT infrastructure could help. 

U.S. nonfederal hospitals lost approximately $161.4 billion in revenue during the four months after the pandemic was declared, the American Hospital Association notes. And nearly one-third of healthcare executives plan to cut IT spending in the next 12 months, according to an October report by the Healthcare Financial Management Association. 

Beyond maintaining continuity during a health crisis, another challenge persists. Teams must explore and deploy innovations such as expanded virtual desktop infrastructure for remote staff and scaling up telehealth — efforts that demand increasingly more resources.

“There is now an extreme expectation” for IT teams, Russell Branzell, president and CEO of the College of Healthcare Information Management Executives, said in a recent interview with HealthTech. “Their full plates are getting fuller with less resources, and maybe less money.”

Consumption-based IT solutions — services or infrastructure billed directly based on a customer’s usage — allow healthcare teams to focus on present-day and forward-looking projects without overspending or long-term commitments.

Savings can be significant. Measures with flexibility built into the cost base can eliminate up to 30 percent of IT spending, according to an April report from McKinsey. Likewise, gaining a clearer picture of expenses and usage patterns in real time can empower organizations that increasingly must make every dollar count. 

A consumption-based model can reduce the cost and complexity of infrastructure operations, deliver consistent performance metrics and accelerate business transformation, an IDC report on the subject notes. 

IDC also surveyed businesses on why they would switch to this model; key reasons were to improve existing services, plan for growth and reduce capital expenditures.

Why a ‘Pay-What-You-Use’ IT Model Can Benefit Healthcare Teams

Unlike IT managed services, which may offer savings by outsourcing key duties — typically for a flat monthly fee — a consumption-based model is tied directly to the amount of what’s being consumed at a given time. 

The concept, also known as metered consumption, involves onsite hardware owned by technology providers combined with per-use billing of compute and storage services. A customer needn’t own any existing equipment, and regular checkpoints are established to monitor usage and growth. 

READ MORE: 5 Ways Health IT Teams Can Save Money During COVID-19

Although it can often involve a fixed term and minimum-use commitment, a consumption-based option helps healthcare systems easily manage fluctuations. 

“With [owned] on-premises storage infrastructure, you can’t get money back if you have purchased too much storage space,” says CDW Healthcare CTO Tom Stafford.

Gaining a deeper flexibility, then, is critical as organizations of all kinds face new and evolving demands on their resources — a challenge that predates the pandemic. A 2019 Futurum Research report on consumption-based IT underscores this divide:

  • 78 percent of businesses say their capacity needs are unpredictable
  • 67 percent have overprovisioned to avoid running out of capacity
  • 38 percent have lost $100,000 or more due to poor planning

Agility is a key supporting component. Consumption-based solutions enable the speed and flexibility of the public cloud, while retaining the peace of mind and control of data maintained on-premises.

A 2018 Forrester survey conducted on behalf of Infrastructure as a Service provider HPE GreenLake revealed more benefits for organizations that have made the switch: Two-thirds of respondents spend less time on global IT projects. Teams also report a 40 percent increase in IT productivity due to fewer support-related demands.

Barriers to Implementing Metered Consumption in Healthcare

Healthcare organizations accustomed to decades of traditional models — on-premises data centers, extended device lifecycles and flat subscription fees, among other things — may at first give pause to the notion of a usage-based payment model.

In fact, unfamiliarity with consumption-based solutions is a key hurdle to making the transition, the Futurum report found. So are concerns about costs and contractual issues.

Healthcare organizations must examine their current infrastructure, data-use needs and anticipated future challenges before they adopt a new model, Erin Thor, a CDW field sales manager, recently wrote in BizTech.

It’s also important, she notes, to frame metered consumption as a tactical, line-of-business function rather than a technology-focused solution. To realize maximum benefits from metered models, CFOs and CIOs must work in tandem throughout.

The resulting scalability and nimbleness can give IT teams and clinicians the support they need to remain agile during unprecedented times — and to be ready to accommodate what comes next.

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