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On the Outs

February 25, 2009
by Kate Huvane Gamble
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For hospitals short on resources, outsourcing can offer a viable option

Mike Smith

Mike Smith

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 Plano, 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.
Dick Hutsell

Dick Hutsell

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.”

Chester Maze

Chester Maze

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.




I think that outsourcing will be most important for the small hospital and the small physician's practice that don't have the expertise, resources and time to employ full time ITS support staff. You also see it in mid sized academic centers where IT research has not been a focus and the university ITS is "afraid" of the headache of healthcare IT requirements.