Some health care leaders are moving past post-pandemic cost containment and are forging forward with strategic growth initiatives. Inextricably linked to these strategies is the need for robust digital infrastructure investments such as enterprise resource planning (ERP) platforms and electronic health record (EHR) implementation and optimizations. However, these projects often carry a hefty price tag for organizations and securing capital investing can be a challenge. Likewise, weighing the viability of these investments can be complex. To understand why these investments matter, and how organizations can justify them, it’s important to look at the long-term value they deliver.
Investing in the future
Capital investments in digital infrastructure can help health care leaders move past the days of using numbers to understand historical trends, to actually predicting future trends. This helps leaders optimize future staffing capacities, focus on capacity management for effective patient flow and bed utilization, and effectively track and predict reimbursement patterns from payors.
These investments can also help enhance the quality of decisions made to further strategic missions of health care organizations. Access to real time data can allow for clinical decision-making support at the time of service to ensure the appropriate care is provided.
For health systems, focusing on ensuring these digital changes align and can speak with one another can generate a tremendous return on investment. For example, when surgical inventory is utilized during care, the use of certain products is documented in a patient’s medical notes which is then entered into the electronic health record. When this information interfaces with the ERP, the data can be used for predictive algorithms and automated configurations to help manage inventory. This reduces the risk of shortages, which helps purchasing patterns and influences the bottom line of the financial health of an organization. Data integration can also detect patterns that could help ensure the right brand or type of surgery is deployed during care.
Securing capital
Securing these types of strategic investments can be a challenge, though, and can take a significant amount of capital. For organizations like state and local government-owned health care facilities, however, some can access capital through issuing municipal bonds, and many are. Shown below, municipal bonds issued by health care organizations are at nearly an all-time high.
Many public health systems deferred major capital expenditures during the height of the pandemic, opting for operational stability over massive construction or equipment refreshes. Now, some organizations have a pent-up demand for health care services and essential capital projects necessary for long-term viability. The issuance of municipal bonds addresses that need. And, while bond yields have experienced volatility, the inherent tax-exempt status of these debt instruments remains a powerful incentive, offering a cost-of-capital advantage that may be too significant to ignore for many organizations.
Looming debt maturity
The path forward for continued bond issuances will hinge upon thoughtful timing, however. In the health care industry, the looming debt maturity wall poses a risk to how expensive the next wave of capital will be. As shown below, over the next 5 years, there will be $122 billion of debt that either needs to be retired or refinanced.
This could cause a drag on capital expenditures for some organizations as they will need to make tough decisions about allocating capital to make interest payments, or pay off debt versus investing in capital expenditures. As interest rates remain elevated, the cost of capital is likely to be more expensive than when the current debt was issued before the pandemic.
Thoughtfully considering strategic shifts and enterprise value are key ingredients to long term viability. For example, some health systems are examining the calculus of cost of procedures and shifting some services to a more convenient and cost-effective site. Many health systems, for instance, have redirected routine colonoscopies or certain orthopedic surgeries to convenient care centers and ambulatory surgery centers. These strategic adjustments not only optimize costs but also enhance patient access and position health systems for sustainable success.
The takeaway
Health care organizations are entering a pivotal phase where strategic growth and digital transformation are no longer optional—they’re essential for long-term viability. Leaders who align technology initiatives with cost-effective care models and enterprise value will be best positioned to navigate financial pressures and deliver sustainable success.
Danny Schmidt
Danny Schmidt is a senior manager in the assurance practice and a health care senior analyst for RSM US LLP. As a member of the Industry Eminence program, Danny works alongside the firm’s chief economist and his fellow senior analysts to understand, forecast and communicate economic, business and technology trends affecting middle market businesses.
