As we enter the fourth quarter of 2014, once again we are experiencing a significant shift in the amount and type of demand for HCIT-related services. We have seen a dramatic reduction in demand for implementation services. Cost-cutting has surged, and consulting firms specializing in this have reemerged as the official experts on HCIT cost structures.
The last time we saw a similar pattern -- the late 1990s and early 2000s -- there was a boon in IT outsourcing services. Back then, leading cost reduction firms frequently recommended broad-based IT outsourcing as a vehicle to reduce costs and get a better handle on the economics of IT. It was quite common to see entire IT functions outsourced under long-term contracts to firms like Perot (Dell), E&Y (Cap Gemini, then Accenture), First Consulting Group (CSC), ACS (Xerox), and CSC. These types of agreements peaked between 2002 and 2004 and have since been declining, but we are now seeing the trend reemerge.
[Who is in the driver's seat? Read Who Makes Your Health IT Decisions?]
The HCIT industry has been engulfed by significant regulatory changes. These changes have created fallout among the weaker HCIT software providers and a resulting consolidation of the market. The provider system reaction has been to replace their transaction systems with better solutions.
Fortunately, these better solutions also enable enterprise integration, even as those providers recognize the value of this integration to population health and wellness. Unfortunately, these solutions have accelerated IT expenses faster than anticipated, with no corresponding lift in revenue. In fact, because of outside market conditions and changes in healthcare, revenue has been disappointing, and margins have been severely strained.
This margin pressure has once again raised the question of outsourcing. The bad news is that vendors are once again offering outsourcing as a panacea for cost control. The good news is that we now understand the pros and cons of contracting for services far better than we did in the past. The remainder of this article will attempt to demystify IT outsourcing and discuss those areas worthy of exploration.
Outsource the obvious
Software development by healthcare organizations is no longer a topic of serious debate. We have completely outsourced EMR development to HCIT vendors. The few remaining provider organizations that were committed to homegrown development have succumbed during the last five years. Though the number of viable HCIT suppliers has gotten smaller, the software they manufacture and support is far more sophisticated, and much of it actually works. Providers must accept that they now purchase the vast majority of their software and learn to work more effectively with their supplier. Be a good customer by staying current and customizing as little as possible.
Data centers and business continuity is an area where the services market is already maturing. Data centers consume a great deal of capital to build and/or expand. Given the degree that providers depend on electronic workflows, real business continuity is no longer optional. We see two options emerging.
Billing and collections have long been candidates for outside services. Thirty years ago, every provider used shared services for billing. Since then, however, much of it has
moved in-house. Clearing houses, bolt-on data scrubbing, and transaction processors continue to provide a third-party services layer at the edge of the organization. Outsourcing beyond this is becoming more common, depending on simple economics and provider organization capacity.
Be thoughtful with the rest
As an industry, healthcare will spend more on technology over time. Ideally, we can leverage that IT investment to recover expenses from other areas. The mandate is to improve quality, transparency, and population health while better managing healthcare inflation. IT and appropriate levels of medical technology are the best tools to make that possible. We have spent a fortune over the last five years replacing EMRs as quickly as possible, but we have not spent a commensurate amount of time or money improving workflow and measuring the value associated with these investments. We should complete this work before we seriously consider major outsourcing transactions.
All outsourcing contracts include three critical elements: scope, service metrics, and cost. Most providers focus on cost and become frustrated when they're told that increased scope and/or service will cost more. Those same providers usually have a good handle on IT expenses but cannot forecast estate growth or articulate acceptable service levels.
Let's quickly review some other areas that are typically included in IT outsourcing.
From 1998 until 2006, I was president and CEO of a publicly traded HCIT company, where I was responsible for creating and managing the IT outsourcing division. From 2006 until 2009, I was an expert witness on five ITO international outsourcing arbitrations. I have seen the good, the bad, and the ugly. There is no magic to outsourcing, and there is no free money anywhere. Be careful and remember the lessons of the last 30 years.
The owners of electronic health records aren't necessarily the patients. How much control should they have? Get the new Who Owns Patient Data? issue of InformationWeek Healthcare today.MedSys Group President Steven Heck has more than 35 years of healthcare information technology experience. This includes consulting and sourcing skills in the provider, payer, and life sciences segments of the healthcare industry. He is responsible for overseeing MedSys ... View Full Bio