IT outsourcing by hospitals is booming, a trend that shows every sign of continuing, according to the 2017 Black Book Survey. Yet nearly 40 percent of healthcare organizations report that their outsourcing experience hasn’t met expectations. Only 10 percent of the nearly 1600 polled users say their outsourcing vendor has exceeded expectations. Just seven outsourcing vendors received “exceeding expectations” ratings on all of Black Book’s key performance indicators, out of a field of 68 qualifying contenders.
Phoenix Health was ranked #1 among non-EHR-centric IT outsourcers in Black Book’s study. We’re proud of this recognition, of course, but the point of this series is to apply our long experience to help hospitals make good decisions when considering IT outsourcing. In this post we focus on critical factors to consider in determining if and when outsourcing is the best choice for your hospital. Part 2, coming next month, will focus on best practices for vetting and selecting the right outsourcer for your organization.
Why are so many hospitals outsourcing part or all of their IT functions?
- ROI, for one. More hospitals are considering outsourcing to reduce costs, a proven benefit. The Black Book survey reported that 91 percent of outsourcing hospitals have seen a return on investment after about six months.
- Gaining immediate access to trained staff and needed technology is another major motivator. The lightning speed of technology advancement has been both a blessing and a curse for hospitals, especially non urban facilities that have difficulty finding and keeping qualified IT staff. Such limitations may require hiring third parties to provide one or more of a wide range of complex technology services, including hosting, network infrastructure technology and management, service desk, application support, project management, strategic CIO leadership and full IT department outsourcing. Many of these capabilities can be implemented either onsite or remotely, and sometimes a combination of the two.
- Increased cybersecurity risks are a major driver for outsourcing security applications and staff. Non-specialized internal staff cannot keep up with ever-changing threats. Moreover, new security technologies are expensive, and taking advantage of security firms’ leveraging of assets across clients can be an excellent investment.
- As technology has advanced, it has also become an integral part of patient care and hospital management. This IT-centric transformation has changed IT leadership from a primarily techie role of systems implementations, management and support to a significant strategic role in hospitals’ overall planning and objectives. Many hospitals have difficulty finding this level of C-Level IT leadership; demand is exceeding the current supply, especially in smaller communities and rural hospitals. The best IT outsourcers offer executive-level IT leaders with the strategic knowledge and experience to collaborate intelligently with hospital leadership.
- A major benefit of IT outsourcing reported by Black Book — and which we have experienced — is that hospital IT staff is able to spend less time on infrastructure and more on key projects. A congruent benefit is that effective outsourcing enables the hospital’s executive leadership to focus more on core healthcare delivery and management.
- Organizational crisis is a worst-case scenario that prompts an immediate need to bring in third party IT expertise simply to keep the hospital open and caring properly for its patients. I could spend hours describing examples, but if yours is a hospital that is experiencing an operational crisis involving IT, you will recognize it immediately.
When hospitals reach out to outsourcers, they are usually looking for solutions to critical problems. Discussions with hospital executives have revealed daunting issues like these:
- Ours is a poorly performing IT shop (in some cases, chaotic). The HIT staff shortage and internal issues are preventing us from a turnaround. And our costs are increasing. There is so much that needs fixing, let alone install best practices and properly manage upcoming IT initiatives.
- How do we, as a small rural or community hospital attract and retain the kind of leadership, networking, security and analyst talent we need to create the sustainable, high quality IT organization we need? Turnover is a big problem because there are so many IT specialist positions in more attractive locations.
- We are spending too much money on IT. Worse, to get specialized short term expertise for new projects we have to go to expensive consultants because our staff isn’t able to keep up with technology changes and growing internal challenges. How can we save IT dollars and have ready access to specialized resources when we need them?
- We need quality service desk support 24/7 but can’t pay for it without having our agents sitting and just waiting. It’s challenging to match call volume with a staff of full time employees — there are large call bumps at start-of-shift that require more staff than any other time of day.
- We know some hospitals are very satisfied with their IT department outsourcing experiences, and even cite cost reductions. But other hospitals haven’t been so happy with IT outsourcing. Even if we were to consider going this route, how do we prevent a poor decision?
Well-executed outsourcing can solve difficult internal problems cost-effectively, but poorly-executed outsourcing can worsen those problems or create new ones. Hospitals have hired unqualified or irresponsible vendors that solved few problems, set hospitals back financially, and even created operational crises. We know of hospitals that have hired IT outsourcers that had never even worked with a hospital, but were persuasive in arguing that experience in other industries was enough. The rub was that these outsourcers knew nothing about hospital workflows and the uniquely urgent nature of healthcare environments — both of which are key factors in hospital IT operations. These hospitals’ unfortunate experiences offer an important lesson.
Before seriously considering outsourcing, your hospital must understand the underlying sources of its problems, what it really needs, and if the needs actually warrant outsourcing. More specifically, the hospital must understand what it needs relative to what it can afford, and develop a realistic plan for meeting those specific needs. Depending upon the severity of problems needing solutions, the planning and decision-making process will take some time, but will be worth it. In some cases though, as in an organizational crisis, a hospital may have to take emergency actions. Ideally the planning process should work as follows, as time allows:
- Before electing to outsource any IT function, the hospital should develop a needs analysis, lead by objective participants. Often, the CIO or IT Director may be the least objective leader for this project; hopefully, his role will be part of a collaborative effort by significant stakeholders from other departments and from within the IT department. If necessary, an external hospital IT consultant may need to be brought in temporarily to guide the process for maximum objectivity and added expertise.
- The analysis, including conclusions, must be based on an objective needs assessment. Basically, that assessment should identify the gaps between the IT department’s current results and the results the hospital wants and needs. The wanted outcomes should be prioritized on the bases of organizational strategic priorities and costs to meet the needs, as compared to the costs of not meeting them.
- The needs assessment should be genuinely objective, meaning that it doesn’t include individuals’ wants. Needs must be defined only by performance data in relationship to organizational goals.
- The assessment and analysis also must avoid prejudices for a particular solution, whether it be an internal solution or a particular outsourcing vendor, regardless of previous or current relationships with one. If either who’s or how’s influence the analytical criteria, the project will go off track. Final conclusions and recommendations will lose integrity and value, and the hospital will be at risk of making expensive, poor decisions. As examples, assessments have been compromised by internal politics and individual fears. We also have seen hospitals outsource functions unnecessarily because an incoming CEO wanted to stick with outsourcers from his previous hospital. Some hospitals have outsourced a function because they were sold a solution without actually analyzing their real problems. In at least some of these cases, internal solutions such as reorganizing, retraining and minor systems upgrades would have been equally or more cost effective.
- Considering the high expense of longterm IT outsourcing contracts, final decisions to engage an outsourcing partner should be weighed carefully. They should first consider both the overall concept and impact of incorporating IT outsourcing into the operation. Then the specifics should be your focus: identifying the particular problems that need outsourcing support. In some cases, there may be just one or two (e.g. poor security, an unsatisfactory service desk, or saving costs by switching to cloud hosting). In other situations, the hospital may determine it must outsource most or all the entire department. This is common in smaller community and rural hospitals, but is also the solution of choice for many urban organizations. The best outsourcers can offer many options: outsourcing of all IT functions, and mix and match outsourcing of discrete functions.
The central point here is that in order to make a final decision, stakeholders should collaborate to clearly understand and weigh:
- the unique problems / needs of your particular hospital and their costs,
- the assets and liabilities that existing IT operation brings to the table,
- the related strategic objectives of the hospital, and
- the risks facing the hospital.
If the hospital’s decision is to engage an IT outsourcer or strongly consider doing so, a wide array of vendors exists — far more than the 68 vendors who met the minimal criteria for consideration in the Black Book survey. They offer different services, some very specialized, e.g. security firms and hosting companies. Other firms offer a wide range of services covering virtually every IT function. These companies usually are legitimate and experienced, but many have just hung out a hospital IT outsourcing shingle to take advantage of the boom in this business.
In Part 2 of this series we will cover the composition of the hospital IT outsourcing vendor market, and focus strongly on the outsourcer vetting process. The latter is quite different from vetting a new piece of software: you will have no demos to review, and complex factors must be explored that may strongly impact costs and returns. Stay tuned!
If you would like to speak with any of our outsourcing experts, including our CEO Ron Gue, please feel free to contact us.