Good Practice: Outsourcing Health IT Can Save You Headaches, Not Money

In a wavering global economy, it likely won’t surprise you that the PricewaterhouseCoopers 13th Annual Global CEO Survey, released in January, showed that close to 90 percent of companies cut costs during the previous 12 months, and 35 percent of respondents outsourced a business process or function.

Most doctors don’t want to be in the IT business, but evidence shows that outsourcing healthcare IT may ultimately be a cost-controlling strategy for an organization, rather than a cost-saving measure. “Outsourcing is not something you should do to save money, but something you should do if it makes sense,” says Nir Menachemi, PhD, MPH, associate professor in the department of healthcare organization and policy at University of Alabama at Birmingham.

In 2007, Menachemi, then assistant professor at Florida State University College of Medicine in Tallahassee, and colleagues analyzed data from 83 Florida hospitals to examine whether outsourcing IT functions is related to improved financial performance in hospitals. The researchers found that facilities outsourced a range of IT functions, from help desk support to database management and application development, but outsourcing did not correlate with gains in net inpatient revenue, lower hospital expenses, or boost operating margins.

IT outsourcing is not necessarily a cost-lowering strategy, but instead is a cost-controlling method in which to accomplish an organizational strategy, Menachemi concluded from his research. “Ultimately, drivers for outsourcing should depend on what posture the organization is undertaking strategically,” says Menachemi. “If an organization is focused on improving internal processes and has a real internal focus on trying to be better and do things efficiently and improve quality, then outsourcing is probably not an appropriate strategy for anything, IT or otherwise.”
 

Made in the USA?

General outsourcing trends are based on many variables, including currency fluctuations, general level of education in workforces, and what is and what is not fiscally in vogue, according to Diana J.P. McKenzie, partner and chair, IT & Outsourcing Practice Group at Hunter Maclean in Savannah, Ga., who spoke at HIMSS10 on strategic planning for EMR contracts. “Different areas become popular at different points,” says McKenzie.

Health IT software development (particularly routine work, like coding) is still going offshore “in spades,” whereas help-desk support outsourcing tends to stay within U.S. borders, she says. “The majority of deals in healthcare IT that we’re seeing in outsourcing are purely U.S. deals with outsourcers residing in the U.S.” 

Health IT outsourcing that stays within the U.S. does so primarily because labor costs have dropped due to the recession, and because it’s politically unacceptable to publicly offshore in the current economic reality, according to McKenzie. For example, she cites a recent health IT outsourcing project where a client set up a call center in a U.S. rural community. “They could get workers because all the factories closed down in that town and the environment presented the company with everything you want as an employer: Mature, loyal people willing to work that aren’t going to want to move around from place to place.”
 

It’s complicated

It can be expedient to outsource pieces of a health IT project, rather than the entire thing. For example, Partners HealthCare System in Boston has a large information systems organization and internal development efforts. Portions of that effort are outsourced to various places around the globe, according to Blackford Middleton, MD, MPH, MSc, clinical informatics R&D at Partners.

“Since we build our own applications for many of our clinical systems, it’s more common for us to work closely with developers from Russia or India, as the case may be, and give them specific projects and tasks that fit in our environment,” Middleton says.

There are different models for outsourcing, according to Steve Flammini, chief technology officer at Partners. For example, in an augmentation model at Partners, expertise (some off-shore but typically coordinated onshore) is used as a way to increase capacity without increasing Partners’ FTE head count and still maintain architectural control of the IT project. “That’s one flavor of outsourcing that’s worked relatively well for us,” says Flammini.

Partners has outsourced portions of inpatient systems to expedite the organization’s software development projects, including delivering software for inpatient medication administration and management, Flammini says.

Another model is the strategic partner model, where a commercial interest between potential business partners bonds the technology partners into an IT project, says Flammini.

The most important part of that model is the development task at hand, Middleton says. If a task is a building and/or managing fairly self-contained module or website, that is much more “off-shorable,” in that “there may be significant savings to having the work done in other countries. What happens often, though, is that you can’t isolate the development effort for one module per se,” says Middleton. “It’s tightly integrated to a whole bunch of other technology components used in the solution. Given that sometimes loose and sometimes tight coupling with other componentry in the infrastructure, it makes it difficult to have a positive ROI when you offshore it.”
 

All-out IT

In May 2000, Springhill Medical Center (SMC), a 251-bed medical-surgical facility serving Southwest Alabama, decided to outsource all of its IT operations including technical support, user training, asset management, third-party vendor management and other operations through health IT company Eclipsys in order to stabilize IT services. A decade later, SMC experiences physician order entry via Sunrise Clinical Manager and fully integrated systems and reliability as a result of the outsourcing relationship, according to Randy Sucher, CPA, executive vice president and COO of SMC. The facility continues to pay for outside services under an annual contract and adds IT systems on a fee-per-system basis. 

In addition, the accounts/receivable (A/R) days has dramatically decreased from the time of order to receiving payment for a service. Before outsourcing the system to Eclipsys, A/R days were in the 70s, according to Sucher. Now, however, SMC has gotten A/R days down in the 50s, increasing cash flow by $6 million.

Sucher notes that outsourcing health IT services has not reduced costs, but rather has stabilized them over the years. IT expenses as a percentage of net revenue used to be 2.7 percent of SMC’s operating budget, but has stabilized to 2.2 percent, Sucher states.

Springhill is ready to achieve meaningful use incentives due in part to its outsource relationship with Eclipsys, he says. Outsourcing has positioned SMC to stabilize costs and vastly improve technology, and “the incentive funds will help pay for the initial IT investment.”

Concerning the meaningful use incentives, Partners’ Flammini postulates that “[w]ith the emerging federal standards that are driven by meaningful use, we could be heading into a period now where the barriers to interoperability get dropped and it becomes easier for us to work with a wider variety of technology partners.”