75% of Hospitals are Outsourcing IT Functions. Why?

Once again, healthcare IT outsourcing by hospitals is a booming business.   A recent Black Book survey found that almost 3/4 of hospitals over 300 beds are outsourcing IT services. Even more hospitals and health systems under 300 beds are doing the same: looking outside their organizations for a wide range of complex technology services, including hosting, network infrastructure, service desk, application support and even full IT department outsourcing.

When hospitals reach out to outsourcers, they are usually looking for solutions to worrisome problems. When we’ve spoken with hospital CEOs and COOs about their particular challenges, we hear of daunting issues like these:

  • How do I afford to provide quality service desk support 24/7?   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.  Even the largest hospitals struggle to get enough calls to justify night and weekend support.
  • How do I, as a small (rural, or urban) hospital attract and retain the kind of networking and analyst talent that I need to create the sustainable, high quality IT organization I desperately need?
  • How can I rapidly turn around my poorly performing IT shop, install best practices, and regain the respect of the employees and the medical staff? There is just so much that needs fixing….

As a longtime outsourcer, we love to learn about these challenges because we have successfully resolved them over and over with our clients. Our methodology entails full discovery, including understanding budgetary constraints, and then we hit the ground running with tailored solutions that we know will make a difference quickly.

According to the survey, nearly 90 percent of outsourcing hospitals saw a return-on-investment in Q3 for 2015, and they stated they’re satisfied with rendered services and/or feel that their expectations have been exceeded.

Unfortunately, outsourcing engagements haven’t gone so smoothly for some survey participants.  In the Black Book Survey, over 600 outsourcing users spilled the beans on negative experiences they’ve had in the past — but which they believe enabled them to learn important lessons.  Those experiences include:

  • A strategic mistake in the pursuit of outsourced services.   In some cases, hospitals outsourced functions when they shouldn’t have, because they had unrealistic expectations about the services being purchased, and misunderstanding of the full costs.
  • A mistake in contracting and related expectations. This was the outcome either when the hospital accepted a poorly defined scope of work, and/or when sufficiently concrete standards and objectives for the work were not provided.
  • A mistake in not managing the vendor effectively.  The vendor either didn’t deliver the quality and quantity of service expected, or expanded the work (and the billing) beyond the original scope.
  • Selection of the wrong vendor for the job.

The latter is one of the most significant items on the list. I would argue that this was ultimately a key component of all of the other negative experiences, especially since outsourcing contracts expertare almost always long term engagements.

So, if you intend to join the 75% to 80% of hospitals doing IT outsourcing, how do you make sure you get it right?

  1. First, choose a partner, not a vendor.   What’s the difference?   A vendor provides basic service delivery, e.g. answering your service desk calls for X dollars. A partner is committed to achieving much more — to proactively help you improve your IT operation. The partner looks for new and better ways to continuously improve your users’ experience,  the overall quality of performance, and cost-effectiveness. The genuine partner is committed to the hospital’s successes and experiences the hospital’s successes as its own. These folks are not nine-to-fivers; this is a group that cares, and goes two or three extra miles if needed. Some of our greatest outsourcing accomplishments at Phoenix have been with clients where we took over entire IT departments with a myriad of failing projects, and turned all of them around. In the end, the client was ready to take the functions back over with our blessings.
  2. Insist on defining services and levels of performance. In a complex outsourcing engagement, it may be difficult to identify 100% of key performance indicators upfront. Still, without equivocation, SLAs should be a foundation of your agreement. If some of those needed standards are initially illusive, insist on certain best practices, e.g. good change management and project management methodologies. Outsourcers who are committed to industry best practices like the ITIL (Information Technology Infrastructure Library) standards and the PMI project management standards are best positioned to make the impacts you need.
  3. Choose a partner with experience in hospital IT outsourcing.   The industry is filled with consultants and local service firms who think they can handle outsourcing, but they either don’t understand how it’s different from consulting or think of it as a body-shop contract, i.e. 3 FTEs for 5 years. The riskiest scenario is outsourcing a hospital function to a company that has insufficient hospital experience. Knowledge of the urgent interconnections between IT, clinical care and business work flows is essential for for a successful outsourcing relationship.  All three of the above scenarios can be fatal to the value proposition of an outsourcing engagement.
  4. Be completely forthcoming.  We’ve seen too many occasions where the hospital initially downplays the challenges it is facing, in an attempt to keep costs under control.   Part of defining an outsourcing engagement is identifying the challenges and developing strategies to overcome them. In the case of a full outsourcing engagement, this definition is very similar to the work of an IT strategic planning project.  Being less than forthcoming undermines the effectiveness of the short- and long-term planning that the outsourcer will undertake on your behalf. On the other hand, be wary of any “up playing” of the challenges by vendors you are interviewing, who may be looking to add an extra service or FTE here or there to push up revenues.
  5. Finally, choose someone you trust.   No matter how thorough a job you do defining services, unexpected problems will arise. The healthcare operating environment is too complex, and the future too fluid to lay out every potential situation in advance.   The solutions required may stretch the definitions of scope in the original contract, and it’s critical that both parties work together to define how these new requirements fit into the scope of the existing work, and what might be additional (or even decreased) work. Too often today, vendors and hospitals do not take the face-to-face time needed to establish trust and determine the potential for a synergistic long term relationship. Buying software or hardware through email and telephone may work well enough, but a multi-year IT services contract requires time and effort in establishing a trusted relationship between both parties’ senior leadership.

We can offer you additional criteria for choosing an outsourcer, or simply answer your questions. We also would be happy to discuss a potential proposal. Contact us here!

About Thomas Grove

Principal

A Principal with Phoenix, Tom has over 20 years experience in healthcare IT management consulting and project leadership in such areas as systems implementation, revenue cycle management, HIPAA privacy and security, Meaningful Use, and process improvement.

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