The benefits and drawbacks of cloud ERP systems for healthcare

Cloud can be easier to manage

"In healthcare, there's enormous pressure to lower the cost of operations," said Rick Powers, director in the Operations Excellence practice of consultancy West Monroe Partners. Once a healthcare organization shifts to a cloud ERP service, he said, it can reduce or eliminate the equipment and work hours associated with ERP hardware, including servers, a data center and network administration.

Michael Guay, research director at Gartner, has a similar take on that advantage of cloud ERP systems for healthcare. "Cloud ERP offers organizations an opportunity to redirect their IT resources elsewhere, so they can add more value to other areas," he said. In other words, the back-office work of managing processes such as medical billing and coding can be streamlined enough to shift more focus to delivering services to patients. And that's a priority for many healthcare organizations today, he said.

The agility of cloud technology -- such as the option to scale use up or down -- also means that healthcare organizations don't have to purchase new on-site equipment just to handle intensive projects that have a shelf life, according to Vijay Venkatesan, chief analytics officer for Horizon Blue Cross Blue Shield of New Jersey. Scalability is particularly advantageous for hospital systems that merge and have a burst of ERP records to integrate.

In addition, acquiring new functions for ERP hardware typically requires the purchase of more equipment to gain more processing power. Cloud platforms can easily offer new features to accounting, inventory, HR and other processes through software updates that are part of the subscription package, Venkatesan said. "With cloud, you don't need to go through those monolithic upgrades," he said. "Every five or six years, you have to do that with hardware to be current."

And letting a cloud provider do the work enables organizations to quickly make use of the advanced analytical power found in several ERP cloud platforms, Venkatesan said. Indeed, those platforms tout their ability to analyze data and offer new ways to improve processes, such as giving staffers who handle procurement a stronger grasp of inventory by better estimating the arrival of essential medical equipment and lowering the odds of ordering duplicative products.

Cloud ERP systems for healthcare can offer security

Security is one major concern of moving to the cloud and deserves an in-depth look all its own, with a wide array of opinions and caveats. Yet, the nutshell version is that cloud can offer security -- but the issue is complicated.

Cloud ERP systems for healthcare contain confidential patient information, including credit card and health insurance data, even when electronic health record (EHR) systems and ERP systems are not integrated, Venkatesan said. The nature of hospital business requires that EHR and ERP work in tandem, and that's where Health Insurance Portability and Accountability Act (HIPAA) requirements come into play, he said.

Still, beyond HIPAA, the security of all information is a top priority for healthcare organizations, Venkatesan said. "You have to protect all aspects of workflow," he said. "It's something people in healthcare [organizations] take very seriously because it's paramount to brand reputation and trust."

That's why health organizations should proceed cautiously when reviewing the security guarantees of ERP cloud providers. As a recent report by cybersecurity firms Digital Shadows and Onapsis illustrated, hackers are increasingly targeting ERP-specific vulnerabilities.

Yet, Gartner's Guay believes cloud ERP providers are demonstrating they provide enhanced security. Guay said providers know they need to attract and retain the business of customers that can't afford to have data breaches, so they invest heavily in security technology and expertise, spreading out those costs across customers.

Integration may be easier with cloud ERP

The integration of ERP hardware with other back-office systems can be difficult, and cloud ERP systems for healthcare can make integration far easier than their on-premises counterparts.

Cloud technology today is a lot better in supporting integration.

"Cloud technology today is a lot better in supporting integration," Guay said. "Years ago, if you bought a system, the vendor might provide some integration tools, but it wasn't easy. Today, vendors are architecting systems to be open." In addition, there's far more focus on a better user experience and UI, he said. Many cloud ERP systems for healthcare have interfaces that are simple to set up, manage and integrate with on-premises systems. "For a health care provider, it's gotten easier to integrate patient billing, records management and insurance systems," Guay added.

Better yet, there are a number of cloud ERP systems for healthcare that already combine the many functions that had previously required separate systems, Venkatesan said.

Cloud ERP no panacea

Cloud ERP systems for healthcare aren't without their drawbacks.

The security of sensitive data is a top concern for healthcare organizations, so choosing the right cloud implementation options may be complicated and may require in-depth work with cloud vendors to create the right solution for a given organization's needs.

Beyond that, healthcare organizations can't write off ERP cloud subscription costs as a capital expense on tax filings, as they would for hardware purchases, Powers said. A cloud subscription can be deducted, but the tax savings are small when compared with the write-off of a large capital expense, he said.

In addition, in many cloud models, subscribers cede control of the technology to the cloud provider. "That's the biggest [disadvantage] for CIOs who have been around a long time and are used to controlling things," Powers said. In other words, healthcare organizations choosing a public SaaS model will have to work within the framework of the ERP system. A system administrator who wants to improve the coalescing of transactions, for instance, might be hamstrung by the limits of the technology. "You're now suddenly beholden to a single SaaS provider. You can't go elsewhere," Powers added. "You don't own the software; you only own the data." Similarly, users have to hope outages are rare and downtime is limited. Hospitals, for example, require high availability because of the nature of their services, but despite guarantees, no ERP provider can achieve uninterrupted cloud service.

These disadvantages are a reminder that a healthcare organization should do its homework before shifting its ERP to the cloud. "You first need to look at the overall landscape of your application portfolio," Guay recommended. If a healthcare provider has success running patient billing and management, finance and other processes through on-premises technologies and only dabbles in the cloud, then it shouldn't shift everything to the cloud, he said.

But, as Venkatesan contended, if an organization believes it is constrained by its ERP hardware, cloud ERP might be the logical fit, especially if the organization wants to enjoy the benefit of always being current.

The cloud "is becoming the de facto standard because most of these providers can innovate," Venkatesan said. "You want to be at the cutting edge with these systems. As technology rapidly changes, if you're on the cloud, you can quickly bring these things into your context."