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News and Trends

February 1, 1998
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IT Outsourcing on the Rise

THE HEALTHCARE INDUSTRY IS CONSISTENTLYspending more money on IT outsourcing. A recent study by information technology market research firm International Data Corporation of Framingham, Mass., indicates that the healthcare industry spent approximately $6.2 billion worldwide and $2.9 billion in the United States for outsourcing information systems operations, processing services and other IT-related business operations. The numbers are up significantly from 1996 spending of $5.6 billion worldwide and $2.3 billion in the United States.

The report also estimates that the composite annual growth rate of outsourcing spending will increase 10 percent in the United States and 10.9 percent worldwide through the year 2001. "The healthcare industry is undergoing a tremendous amount of flux as healthcare organizations around the world learn how to harness technology to better serve their patients," says IDC analyst Lisa Maio Ross. Healthcare ranked fourth worldwide in expected growth among 14 other industries, following only banking, communications and insurance industries.

Why outsource?
Reasons for outsourcing are many, but the idea that outsourcing saves money has fallen by the roadside. "The original motivation for us was cost savings," says Charles Emery, vice president/CIO at Blue Cross Blue Shield of New Jersey. "But it never materialized." Emery, who oversees BCBSNJ’s IT outsourcing contract, including approximately 300 IBM employees, says outsourcing gives him an easy way to track productivity and timeliness of delivery. "The downside is you spend a lot of money to do it." With over 2 million covered lives, BCBSNJ outsourced nearly all IT operations to IBM four years ago, and recently re-signed IBM for an additional 10 years.

Hiring and maintaining qualified employees is often the prime reason for outsourcing. Jon Burns, vice president/CIO of Forum Health/Western Reserve Healthcare in northeast Ohio, speaks highly of his own IT staffers--the few that he has. "Youngstown is not a garden spot," he says. "It became increasingly difficult to recruit people into our environment." The executive staff at Western Reserve made the decision to outsource all IT operations to SMS last year. Like many CIOs, Burns’ organization acted in self-defense. In the midst of a merger, downsizing and cost cutting last year, Western Reserve found outsourcing was the only way of implementing new technologies, Burns says.

However, the problem of recruiting isn’t limited to the provider or payor community. "We found that outsourcing vendors sometimes face the same challenges we do in getting qualified staff," says James Karolewicz, vice president/CIO at the H. Lee Moffitt Cancer Center & Research Institute in Tampa, Fla. After bad experiences with unqualified personnel supplied by their outsourcer, Karolewicz’s department began interviewing individuals and administering technical examinations, as if they were hiring for an internal position.

What’s outsourced?
A recent survey of 3,000 information systems directors, vice presidents, senior vice presidents and CIOs conducted by the College of Healthcare Information Management Executives (CHIME), a CIO educational resource organization in Ann Arbor, Mich., revealed that 56 percent of the 512 respondents outsource some portion of their IT services--spending an average of 17 percent of their IT budget.

The most popular areas in IT outsourced fully or partially are software development, implementation and support (21 percent); network design and support (20 percent); PC/desktop maintenance and support (19 percent); and data center operation (14 percent). The survey indicates how outsourcing has changed over time. "Outsourcing today has a broader definition," says Terry Wilk, vice president/CIO of Fairview Health System in Cleveland. "Ten years ago people thought outsourcing was either the data center or nothing."

--Jeffrey Elliott