By Chris Rogowski, Partner of Strategic Advisory, Pivot Point Consulting
LinkedIn: Christopher Rogowski
LinkedIn: Pivot Point Consulting
Hospitals across the U.S. are hoping that 2026 ends much differently than it began.
In January, a difficult financial operating environment carried over from the prior year, as expenses and bad debt grew, while patient volumes declined.
Expenses per calendar day rose 5% year-over-year in January, pushed higher by rising costs for drugs and labor. Bad debt and charity care were up 8% over the same time period, while patient volume decreased across both inpatient and outpatient services.
As a result of these increased expenses, hospitals’ overall structural costs are expected to climb, creating a challenging economic environment that will force hospitals to be strategic about allocating resources and managing spending, according to that same report.
To overcome this cash crunch, many hospitals are looking to achieve savings on information technology (IT) spending.
Application rationalization drives financial savings
Hospital leaders are increasingly directing their IT departments to pursue application rationalization, a process designed to reduce costs and enhance operational efficiency.
For example, a recent survey of College of Healthcare Information Management Executives (CHIME) members found that 76% of chief information officers say application rationalization is “critical” and more than a third report that it is a major driver of cost savings.
Application rationalization involves a comprehensive effort to streamline and modernize a hospital’s IT environment. It begins with identifying outdated systems and archiving or decommissioning those that no longer deliver value.
At the same time, organizations update key applications to improve efficiency and reduce reliance on manual processes, often enhancing patient-facing tools such as self-scheduling, appointment reminders, and virtual care platforms to ease administrative burdens and allow staff to focus more on direct patient interactions.
The process also addresses the complexity created by mergers, acquisitions, or divestitures by integrating disparate systems or separating those tied to sold-off services. Alongside these efforts, hospitals review and strengthen cybersecurity measures to better protect sensitive patient information and ensure compliance with evolving data privacy standards.
With IT cleanups, hospitals can realize broad financial benefits
The financial impact of application rationalization extends well beyond simple cost-cutting. By eliminating redundant systems and standardizing technology environments, hospitals can meaningfully reduce the overall cost of maintaining their IT infrastructures. Because applications represent a large share of IT spending, even modest efficiencies can translate into substantial savings across the organization.
Importantly, not all of these savings should be viewed as cuts. Many organizations are reinvesting a portion of the gains into newer technologies that can drive additional efficiencies over time. Advances such as artificial intelligence (AI), for example, are increasingly being used to streamline administrative tasks, support clinical decision-making, and reduce operational waste, all of which can contribute to longer-term cost control.
For instance, AI can enhance hospital efficiency by helping optimize staffing levels, streamline patient scheduling, and improve supply chain and medication management, according to research from Morgan Stanley. Hospitals may be able to cut costs by 10-20% using AI, for cost savings in 2050 in the range of $300 billion to $900 billion, the report predicted.
At the same time, modernizing IT systems helps hospitals avoid costly disruptions and risks. Strong, well-maintained technology environments are less vulnerable to cyber threats and data breaches, which can carry significant financial and reputational consequences. In this way, IT cleanups not only improve day-to-day efficiency but also serve as a proactive measure to reduce exposure to future liabilities.
Conclusion
As financial pressures persist, hospitals cannot afford to overlook opportunities for meaningful savings within their own operations. IT modernization and application rationalization offer a practical path forward by reducing unnecessary costs, improving efficiency, and strengthening resilience against future risks.
Healthcare organizations that take a strategic approach to cleaning up and reinvesting in their IT environments will be better positioned to stabilize their finances while continuing to deliver high-quality patient care.