Driving Down the Cost of Health Care Through Next Generation Networks

by Davis Wright Tremaine LLP
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Current and future health care delivery models are quickly outgrowing legacy communications architectures, which lack the structural flexibility and, more importantly, the control and security of Next Generation Networks, or NGNs. NGNs can fundamentally change and improve the existing health care business model by reducing costs, increasing flexibility, maximizing new technologies and expanding health care services, all closely controlled to satisfy regulatory constraints.

What are Next Generation Networks?
NGNs enable lightning-fast exchanges of data over a wide geographical network that can encompass city, state and even multi-state regions. Data includes all types of information and services, such as voice, video, electronic health records and telehealth applications (e.g., remote diagnosis). While the Internet is available for health care uses, latency and capacity/cost/security issues obstruct the complete and secure control of data and communications that are available with NGNs. NGNs enable new applications and create ubiquitous connectivity using one network focused on health care. They reduce costs by removing costly legacy technology and by decreasing complex, circuitous connections not necessary for a purpose-built network. At the same time, NGNs permit much higher levels of control over network security, stability, reliability and geographical deployment. Significantly, users are no longer constrained by third-party restrictions and limitations.

Case Study: OSF Healthcare
One major health care system that has capitalized on the new opportunities of an NGN is OSF Healthcare System, based in Illinois, which consists of nine acute care facilities and two colleges of nursing. It also has a primary care physician network consisting of over 600 primary care, specialist physicians, and advanced practice providers. Total operating costs for OSF had tripled over five years, much of it due to the rapid growth of its costs to operate its legacy network. OSF’s decision to implement an NGN was driven by the need to increase capacity and better support health care delivery, mitigate risk to its existing network and enable future health care applications. By implementing an NGN, OSF has improved operational efficiencies and patient outcomes. The network is deployed with projected payback in 36 to 60 months.  Davis Wright, along with Fiberutilities Group, assisted OSF in implementing its NGN.

Examples of cost savings:

• Five-year operating expense reductions of up to 25 percent
• Data center foot print reduction of up to 45 percent
• Power cost reductions of over 30 percent

Although the cost and cost savings generated by NGNs are unique to each network, as a range of magnitude, such a network can cost anywhere from a few million dollars to upward of $20 million. The payback potential, however, is tremendous. Removing legacy equipment and the cost of operating and maintaining such equipment alone can save hundreds of thousands of dollars monthly, plus the revenue generated by improved, new and different services can increase the bottom line substantially.

Funding Sources for NGNs
Funding NGNs can be accomplished by a number of means. The federal government’s Healthcare Connect Fund, for instance, is an annual funding facility of $400 million devoted to NGNs.  Internal funds are another source as are funds generated by the sale of network capacity to third parties.

A necessary first step toward realizing the benefits of an NGN is to conduct an assessment of existing network connectivity and then compare it to what can be done and what best fits the long-term strategy of the health care entity. Once that step is accomplished, the next step is to determine how best to get there by creating a detailed plan and fully supporting and executing that plan.

One thing is certain: NGNs are on the rise. They offer health care providers the ability to reverse the trend of decreasing revenues and increasing costs as well as to remain competitive with other health care providers by the delivery of new and improved health care services.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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