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Tough economic times call for serious thinking when it comes to I.T. spending. Dwindling reimbursements clash with ever-expanding demand for new spending. So what is a savvy CIO to do? Here are five lessons from the pros.

Tough Times Tip #1: Gain Leverage by Outsourcing

John Liston knows all about financial prudence. Serving as vice president of finance and CFO at 186-bed Port Huron (Mich.) Hospital, Liston must grapple with the reality of limited resources. The small community hospital lacks the resources of larger academic centers, and being independent, it has no corporate parent to turn to for additional capital. That's why, when it comes to spending on I.T., Liston must maximize the bang for every buck. Even recruiting I.T. staff is a problem, he says, because of the limited opportunities the community hospital can offer its potential hires.

The economic constraints led Port Huron to outsource its entire I.T. operation several years ago to Superior Consulting, now part of Affiliated Computer Services Inc. of Dallas. The hospital recently switched outsourcing partners, converting last fall to Troy, Mich.-based CareTech Solutions. Port Huron now pays CareTech $6 million annually to run its entire I.T. operation, including the data center. "It is virtually our entire I.T. operating budget," Liston says. In return for that, Liston is able to tap into CareTech's expertise, which he concedes far outstrips what the hospital could assemble on its own. "Being a small hospital, we don't have the economies of scale," he says. "They can offer the system redundancy and back-up we need at a better price."

The outsourcer also negotiates I.T. contracts on behalf of Port Huron. "We don't have the leverage they do," Liston says. As far as capital budgets go, Port Huron has been spending ambitiously on developing an electronic health records platform.

Using technology primarily from San Francisco-based McKesson Corp., the hospital has spent nearly $5 million to date. It has deployed systems that enable nursing documentation, admission-discharge-transfer planning and billing. Next will be an emergency department system and physician order entry.

Port Huron faces two other large I.T. spends in the near-term. First, it will spend about $1.2 million on a picture archiving and communication system. Port Huron has winnowed down the list to two finalists and at press time was on track to pick a vendor early this year. Second, it needs to upgrade its 20-year-old phone system to a modern network that supports Voice over Internet Protocol, a project which will come in around $1 million, Liston says. Other needs that compete against I.T. projects loom on the horizon as well.

"We need to replace a patient tower and are looking to do that in the next five years," Liston says. "We want private rooms."

The key to wise spending, Liston asserts, is benchmarking against other hospitals and what the industry is doing overall. That is one reason the hospital has invested so heavily in its EHR.

"We believe that we will be required by the federal government or Medicare to become more electronic," Liston says. "But with the tremendous cost of paper and record storage, a good I.T. system should pay for itself. But you can't afford everything at once. So you have to plan, plan, plan."

Tough Times Tip #2: Build It Yourself and Save

Evangelical Lutheran Good Samaritan Society began its EHR journey five years ago. Good Samaritan was looking to improve documentation across its 240 locations, which provide long-term care services, assisted living and senior housing in 23 states. In 2004, it deployed software that enabled caregivers to track resident activities. The system grew to include bedside assessments and nursing documentation.

It's a common scenario - with one exception. The software is homegrown, says Rusty Williams, vice president of information services and chief financial officer. "It was more cost effective to build it ourselves," he says. "We looked at products and concluded that we could get more of what we needed if we took this approach. Commercial software would have cost in the millions."

Good Samaritan maintains 87 I.T. staff and a $7.5 million annual I.T. operating budget. In addition, it maintains an annual fixed capital budget of approximately $1 million to maintain its vast infrastructure, which includes a wide area network that spans 23 states. "Other major I.T. capital requests have to compete against other needs," Williams says. "The challenge in technology is that there are far more requests than resources. I.T. exists to enable others to be successful."

Any capital request goes through a screening process, which includes a cost-benefit analysis. For example, Good Samaritan recently made a bulk purchase of nearly 4,000 hand-held devices from Newark, Ca.-based Socket Mobile Inc. The hand-helds will support point-of-care assessments done by nurses, who use the home-grown software. The investment in the hand-helds, Williams says, was justified by the impact the technology would have on clinical decision-making and care documentation. Rather than making notes on paper, and later transferring the information to a computer, caregivers can use the hand-helds while they make rounds. Another plus: that should provide more accurate capture of the work clinicians perform and thus support higher reimbursement.

Williams won't disclose the cost of the hand-helds. But the price pales in comparison to other technology spends that linger on the horizon. "We are looking to complete our vision of the EHR," Williams says, referring to a more robust system that would incorporate medication administration and data exchange with the hospitals that refer patients to Good Samaritan. "It will be a significant capital expense," he says. "Our bedside assessment tool is just one piece."