Hospital Budget Systems Are Harming Innovation
Is the way that hospitals are formulating their budgets hurting the adoption of digital innovations? Experts in an article for Harvard Business Review think so.
Derek Haas, Michael Jellinek, and Robert Kaplan, who co-authored the Harvard Business Review piece, state that hospitals remain slow at embracing innovation even though recent research shows that 75 percent of senior hospital executives endorsed the importance of digital innovation. While some of the blame can be attributed to overloaded IT departments, most of it can be linked to hospitals’ misaligned budgeting systems. Haas, Jellinek, and Kaplan have identified three clear barriers to the adoption of new technology.
The first barrier is related to unaligned budgeting units. Hospitals typically organize their budgets by clinical departments; care areas and ancillary departments. Each department has its own budget which it is accountable for. This disconnect makes it hard to budget for new technology because the department looking to acquire new technology would be responsible to pay for it in its entirety out of its own budget. The authors suggest that creating a central innovation budget would alleviate this problem and would allow other departments to benefit from acquiring new software.
Second, hospitals have very rigid annual operating budgets. The annual process can make it hard for a department to invest in technology because if the department depletes its fiscal year budget, it must reduce its spending the following year to meet targets.
“A centralized innovation budget would again somewhat offset this dysfunction by shifting the spending from a department’s annual operating budget to a centralized budget” the authors wrote.
The last problem the authors discussed was separating operating and capital budgets. They express that technology is often purchased under the capital budget but tends to be sold on an annual subscription basis, which falls under the operating budget. Meaning, acquiring new technology is dependent on its respective budget, and not the benefits of having it.
The authors mention that hospitals should think about retaining a capital budget just for physical infrastructure and should then allow for software implementation to be based on “the performance considerations and discounted cash-flow calculations, not whether the acquisition fits into the capital or operating budget.”
Traditional budget structures keep departments from being “agile and responsive to innovative technologies that deliver performance improvements for patent care.”
Hospital leaders should consider implementing a central innovation budget as such changes will allow them to acquire more innovative technologies, which, in turn, will enhance patient outcomes and decrease service lines costs.
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