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Healthcare IT Outsourcing Returns: Proceed With Care

Healthcare providers are starting to consider outsourcing options again. Here are some areas where it can work -- and some to keep in-house.

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.

  • Outsourcing the entire IT shop: IT now serves as the nervous system of the provider enterprise. Turning the keys to the store to a third party that scrapes 25-40% gross margin off the top is both costly and incredibly dangerous. Remember that third parties can become hostile; I have personally assisted a provider through such a situation. In 2014, having a hostile third party parked between you and your nervous system is a frightening concept.
  • Application support: This is quite diverse, but for your core applications (EMR, revenue cycle), you already pay suppliers 15-20% per year for maintenance and basic support. Outsourcing proposals highlight 40% savings through labor arbitrage while quietly agreeing to pass a small fraction of that savings to you under specific conditions. Now is not the time for Byzantine cost structures and hidden fees. In addition, the interaction between application support and your optimization efforts makes it incredibly difficult to achieve high service levels when a third party must make all of changes.
  • Desktop support: This can work, but you must first define what is good service, and for whom. Replacing a terminal in the ICU is a different problem than fixing a printer in a rural clinic. The value and the risk are in the fine details.
  • Help desk: What problem do you want fixed? Do you want rapid pickup and 24-hour coverage? Do you want first-call resolution? These are very different problems. I have seen many organizations pay a lot of money for an 800 number that simply redirects problems to their current staff.
  • Security: This is not a good candidate for outsourcing. Consultation and independent review are incredibly valuable, but you simply can't separate the serious security risks from your users and business operations. You already own this problem, and you must view it in a holistic manner.
  • Projects: Most IT-related projects following EMR implementation are "optimization" projects that require a collaborative team, including IT and operational people. You can readily contract IT staff if you need to, but if you outsource your project work as a whole, you will at best get a limited number of hours to handle all project-related requests. When this time is used up, get out your checkbooks. You will not want to pay 2-3 times your internal rate for ongoing optimization efforts.

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.

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