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On the outs: for hospitals short on resources, outsourcing can offer a viable option; for others, tasks are better handled in-house.

Across the country, healthcare organizations are examining their IT budgets to identify which products and services are essential, and which may need to take a back seat.


One of the areas under scrutiny is IT outsourcing.

"It's definitely on everyone's mind. Hospitals are reprioritizing where they're going to be spending their money," says Mike Smith, an analyst with Orem, Utah-based KLAS.

According to a 2008 KLAS report, there's a downward trend in the number of organizations that are farming out extensive IT functions. In the past year, states the study, outsourcers have seen more clients discontinue outsourced IT services than those that have signed new contracts.

"We're not seeing a lot of growth," says Smith. "It's not necessarily shrinking a lot, but it's not growing."

Outsourcing, however, is by no means extinct; but the landscape is changing. According to Smith, a growing number of organizations are choosing to farm out certain IT functions while keeping others in-house, and finding they can better structure agreements. So while extensive outsourcing may be stalled, the market for application hosting appears poised for growth.

"Based on what I'm hearing and seeing in the industry, that's one of the fastest growing areas," Smith says. While in the past, organizations have shied away from outsourcing core clinical and financial applications, this now appears to be changing. Recent KLAS data shows an upswing in the number of providers having their applications hosted by either a software vendor or third party, particularly as technology implementations become increasingly complex. Healthcare executives, the report shows, are leveraging IT outsourcing to attain the goals that they may not have the resources to carry out.

It isn't, in fact, just about the dollars.

"I don't think everyone goes into IT outsourcing necessarily to save money; in fact, I think some go into it recognizing that it's probably going to cost a little more," Smith says. "At the same time, they're expectation is that the service will be better than what they could do themselves."

Leaving the nest

Daughters of Charity Health System, a six-hospital network in Los Altos Hills, Calif., first began exploring outsourcing when it split from Catholic Healthcare West in 2002, leaving the system without an IT staff.

"We had to find a way to deliver IT, and outsourcing was the easiest way for a brand new organization to bring in an IT staff that had some knowledge of our particular environments and could do it quickly," says Vice President and CIO Dick Hutsell.

The organization chose to farm out the majority of its IT functions to Piano, Texas-based Perot Systems. Under the terms of the deal, the company would provide "project management, application support, infrastructure and operations--basically everything," says Hutsell. Since then, however, the arrangement has evolved to enable Daughters of Charity's internal staff to manage some key applications, including the PACS and human resources systems, telecommunications, and medical devices.


Daughters of Charity, Hutsell says, has the option to either manage tasks internally or farm them out, depending on its capabilities. "With any project, we have the ability to use any staff, whether it's in-house, Perot, or another consulting firm," he says. "We look for what makes the most sense, from a cost standpoint and from a service standpoint."


The Christ Hospital in Cincinnati had a similar experience. When the 555-bed, not-for-profit acute care hospital separated from the Health Alliance of Greater Cincinnati in 2007, it contracted with CareTech Solutions, Inc. (Troy, Mich.) to provide all IT functions as it built out a new infrastructure.

"As we decided to transition back to an independent hospital, we really did not have in place an IT infrastructure, so in order to quickly get that in place, outsourcing was the right option," says Vice President and CIO Chester Maze. The agreement stated that CareTech would manage the infrastructure--providing both support and maintenance, administer the help desk, and provide field technicians and application analysts to host the equipment that is owned by the hospital.

Since then, however, the Christ Hospital started taking on some significant tasks. According to Maze, the hospital built an internal IT department to focus on project management and on the strategic planning and prioritization of systems. In 2008, the facility used those resources to implement clinical, financial and ancillary systems. "We want to ensure that our IT platform and service stays in step with where the organization needs to go, and this enabled us to do that," he says.

According to Smith, it's not uncommon for hospitals to scale back with outsourcing once they have a better handle on their capabilities. "Some organizations that were fully outsourced have taken certain components back," he says.

However, when it comes to rolling out complex systems like CPOE, hospitals with fewer IT resources may find outsourcing is the best option, particularly when aggressive timelines are a factor. Using outside assistance enabled the Christ Hospital to implement CPOE "very quickly and very extensively," making it a worthwhile investment, according to Maze.

"When you take into account the fact that we've implemented advanced clinical systems plus the full ERP suite in less than eight months from contract signing, and we're still tracking in line with that 3.5 to 4.25 percent of operating expense, we do not view it as an overly expensive undertaking to outsource," he says.

Bringing IT in-house

For some organizations, however, IT outsourcing isn't part of the solution; but is, in fact, part of the problem. When Steve Garske took over as vice president and CIO at Children's Hospital of Los Angeles (CHLA) in 2006, the IT department was in desperate need of an overhaul, particularly in terms of the infrastructure. The 286-bed, acute care facility was experiencing problems with e-mail, Internet and network core switches, all while watching 80 percent of its budget go toward outsourcing services.

So Garske decided to shake things up and proposed an aggressive plan to bring the infrastructure in-house, which meant terminating some of the hospital's largest contracts. With more funds now available, a project management office and Web development team were created and the server environment was rebuilt. As a result, CHLA was able to reduce infrastructure costs by 50 percent and realized savings of $6.5 million directly to the bottom line. The organization was also able to increase support staff by 55 percent, which has improved service, according to Garske.

"All these new service aspects have allowed us to not only save the dollars, but complete more critical IT projects than ever before," he says.

Garske says he strongly believes it's not always in organization's best interest to subcontract IT services, and says the majority of the time, tasks can be managed in house. He says he feels that for commodities like a desktop, server or similar types of infrastructure, "it doesn't make a whole lot of sense to have someone else do that work for 20-plus percent above what you could probably do it for yourself."

CHLA's experience was not isolated; according to KLAS research, of the 54 organizations that have reported discontinuing or changing outsourcers, 76 percent either brought everything in-house or reduced outsourced services to less than 50 percent, while the other 24 percent changed companies. The most common reasons for this, says Smith, include the outsourcer failing to deliver as expected, higher costs than expected, lack of control, objectives not being aligned, and a poor cultural fit.

"When you start referring to the contract a lot, it is a sign that the relationship is beginning to go south," Smith says. "When there is a lot of finger pointing, that's when you really start to have some problems."

And in those cases, an organization's best bet might be to venture out on its own, as CHLA chose to do. But for others, like Daughters of Charity and the Christ Hospital, outsourcing can fill holes and help achieve goals that might not have been reached otherwise.

"There are a lot of different flavors and different ways that these things can be structured," says Smith. "What matters most is that both parties are getting what they need out of the relationship."


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Relationship Advice

When considering outsourcing IT, people say there are a number of factors that healthcare organizations should weigh.

* Be clear on the details. According to Mike Smith, KLAS analyst, CIOs should make sure their expectations are clear. Steve Garske, vice president and CIO at Children's Hospital Los Angeles, takes it a step further. "You definitely have to make sure that your contract covers as much as you possibly can," says Garske, who recommends bringing on an expert to look it over.

* Communicate often. The IT department and the outsource partner need to communicate closely on project activities, says Chester Maze, vice president and CIO at The Christ Hospital. "The key thing is ensuring that both the outsource partner and the client have the same understanding of what defines success, both in an operational day-to-day role, as well as the ability to respond to changes and new projects in a seamless manner," he says.

* Engage at the highest level. Staying closely engaged and actively involved at the executive level is a critical component of a healthy relationship, Smith says.

* Avoid the "us vs. them" game. The solidarity factor is also important. At Daughters of Charity Health System, Vice President and CIO Dick Hutsell says the outsourcer provider, Perot Systems, is 85 percent of his IT staff. "We view the organization not as contracted outsource folks and some inside folks--it's just one staff." In addition to holding weekly meetings, "We do a number of things that really try to foster that oneness environment, and I think that clearly has been a big factor."

* Manage the relationship. Says Smith, "You have to proactively manage the relationship. A lot of times, people think, 'If I outsource that, then I no longer have to deal with it.' The reality is you still have to manage the relationship. You have to make sure that they're delivering what they said they would. You need to work with them and recognize that it's still going to be work, despite the fact that you're paying a lot of money."

* Set standards. Finally, benchmarks should be established to ensure goals are being met. "The metrics can be anything from response time from the help desk to uptime on servers or networks," Maze says. "The intent is to use those indicators to guide the relationship, not necessarily to dictate the relationship." The agreement in place at Daughters Health System dictates that if the outsource provider fails to meet certain metrics, the IT staff has the right to bring the service in-house.


* Industry trends show that the number of organizations that outsource all IT functions is decreasing, while the market for application hosting is growing.

* For organizations that are lacking IT resources, such as those that have recently split from a parent system, outsourcing can be used to build an IT department or to rollout implementations.

* Many CIOs find that once the IT department is able to get a better handle on its capabilities, it can scale back on outsourcing.

* An outsourcing agreement has to be the right fit for both parties. If costs are climbing and needs aren't being met, a CIO's best option is often to bring IT back in-house.
Industry Sentiment

How does your organization view the use of outsourcing
IT to better manage costs?

It can work for tasks like helpdesk
support or rolling out PCs                 (21.05%)

It should be used for larger functions
like outsourcing the IT infrastructure     (10.53%)

In this economy, it's smarter to handle
all tasks in-house                         (42.11%)

Other                                      (26.32%)

Source: HCI Poll, January 2009

Note: Table made from bar graph.
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Article Details
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Author:Gamble, Kate Huvane
Publication:Healthcare Informatics
Date:Mar 1, 2009
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