By Vince Vickers, Principal, Advisory Consulting, Healthcare and Life Sciences, KPMG
The healthcare industry is poised to get a lot healthier – and it couldn’t come at a better time. The sector has been battling rising costs for decades, putting healthcare on an unsustainable trajectory, according to new research by Dr. Michael Mandel, senior fellow at the Mack Institute for Innovation Management at the Wharton School. In his report commissioned by Oracle, Mandel asserts that cloud services could be a “literal lifesaver” for healthcare, empowering organizations of all sizes to adopt leading practices and technologies that boost productivity and improve clinical care.
Dr. Mandel’s research is consistent with my recent client experiences. In fact, many of our healthcare clients tell us they have stated goals to put as much as 85% of their current applications into the cloud. Meanwhile, results from early adopters of cloud solutions have been impressive, with providers reporting significant upticks in productivity and savings from the efficiencies and best practices embedded in cloud applications. Reductions in manual effort, improved analytics, timeliness of the data, and lower IT support costs are just a few of the opportunities we’re seeing early on.
Cloud services in the back-office are attractive to healthcare organizations because they offer an escape from endless cycles of on-premises ERP system upgrades. In that legacy world, enterprise platforms lasted about a decade before you moved on to the next big thing. Yet within that period you still had to upgrade your system multiple times to stay compliant with maintenance agreements. These incremental upgrades could be costly while providing little additional business value.
The cloud changes that scenario by allowing you to replace complex on-premises upgrade projects with more regular cloud updates that are non-intrusive. No development teams or large-scale technical efforts are required. Just simple testing, some appropriate change management and training, and you’re ready to turn on valuable new functionality for your user base. The update experience is growing closer to what business users are accustomed to in their consumer lives. (Think of the ease of updating an app on your smartphone.) Most importantly, the pace at which the new functionality is being released is unprecedented.
With the cloud, barriers to growth disappear because you’re basically buying a utility. It’s like in the summer when you seasonally need more water for your lawn. You just open the spigot and use what you need and pay at a preset rate. No need to worry about building new pipelines or treatment plants when you need extra volumes of water. It’s the same with growing your healthcare system or employee base in the cloud: the underlying digital infrastructure is quickly flexible and scalable. This scenario is particularly relevant in today’s ever-changing world of healthcare, especially given the rapid pace of M&A and consolidation.
The cloud also brings much-needed standardization to business processes. Although the move may seem constraining at first, every organization I talk to develops a deep appreciation for the easy updates, automation, and best practices that only cloud standardization can provide. Nobody wants to go back to the old days of trying to preserve customizations through every upgrade; today, there are options like platform-as-a-service to develop new capabilities (if required) that are upgrade-safe.
Even better, the productivity boost driven by cloud applications allows healthcare organizations to channel more resources into clinical care. Now you have more money to spend on clinical staff, salaries and training. It also lets back-office “analysts” spend more time actually analyzing data – and discovering new ways to strengthen the business. What’s more, cloud platforms can form the basis for deploying new digital tools, such as predictive analytics, that can be a game-changer for the organization.
One example: cloud services are helping Blue Shield of California integrate financial data with population health data, potentially removing hundreds of millions of dollars in costs from the healthcare system through better population health management. “It’s a huge economic opportunity and will ultimately enhance clinical quality and patient outcomes,” says Michael Murray, senior vice president and CFO at Blue Shield of California. His group is now looking at robotics, machine learning and artificial intelligence to address challenges such as insurance fraud. KPMG is working with Blue Shield of California to transform its business operations and provide better value for its customers by transitioning the organization’s on-premises ERP to Oracle Cloud.
More and more I’m seeing CFOs like Murray championing investments in cloud platforms. They see early adopters reaping outsized benefits and their concerns about cloud security have all but vanished. Also, more CFOs are coming to a stark realization: healthcare institutions – especially nonprofits – simply can’t sustain their current cost structure. They need to do something, and the smart move is to the cloud.
The journey to the cloud can be surprisingly easy, as long as organizations properly prepare for the transition. By following a streamlined approach, such as KPMG Powered Enterprise and our Powered Healthcare offering with Oracle organizations can accelerate requirements gathering and time to value. Instead of starting from scratch, our approach provides clients with proven best practices for each core business function, which then allows us to quickly focus on the important and unique business needs of each client.
Looking ahead, I see the healthcare sector splitting into three tiers. At the top are the early adopters of cloud technologies – what Mandel calls “frontier firms” – that are setting the pace in their industry. Below them is a second tier of companies that are moving to the cloud at a more measured pace, pursuing the leaders as they prove out new digital technologies. I expect both tiers to benefit from the productivity edge they’ll gain from moving to the cloud.
But I also see the emergence of a bottom tier comprised of healthcare organizations that have decided they can’t afford to invest in the transition to cloud. These organizations are likely to get caught in a vicious cycle of declining margins and reimbursement rates. Frankly, the prognosis for these enterprises is not good; their options will likely be an M&A situation or extinction.
The reality is that organizations need to spend money to save money. And if healthcare organizations fail to invest in technologies to improve efficiency over the long term, most will face a growing struggle to survive. Granted, it may seem like a leap of faith to invest in some cloud services that are still maturing. But as hockey great Wayne Gretzky once said: you skate to where the puck is going to be. If you don’t do that in the healthcare industry -- where margins, especially for non-profits, hover in the low single digits -- you may not be around for very long.
It will be interesting to watch the healthcare industry evolve in the coming years as organizations navigate the shifting economic and regulatory landscape. However it shakes out, I predict cloud services will be the platform of choice for the industry’s next generation of frontier firms.
With the launch of KPMG's Powered Healthcare in collaboration with Oracle, organizations can take advantage of a target operating model tailored for healthcare.