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How to Increase IT Costs

December 22, 2008
by Vince Ciotti and Barry Mathis
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H.I.S. Pros offers a tongue-in-cheek approach to healthcare IT budgeting

Vince Ciotti

Vince Ciotti

Yes, you read correctly: This is about how to

increase your IT costs during this economic turmoil. Why? Any day, your CEO or CFO might call a meeting to start cutting costs in light of dwindling revenues and reimbursement. If you've been keeping your costs under control, how are you going to find 5 percent to cut? The answer is: act now to

add 10 percent or more to costs, so when the axe falls, cutting will be easy.

Barry Mathis

Barry Mathis

We must give credit for these cost-increasing ideas to the more than 100 hospitals we have assessed during our work with such firms as the Hunter Group and Catholic Health Audit Network. Their audits and assessments have shown us first-hand how these techniques can bloat IT costs to the point of driving hospitals insolvent. Thus, these are practical techniques — not just academic theories — and they have been proven in the real world.

These cost-increasing techniques are broken down into three categories:

  • Internal — that can be implemented from within the IT department

  • External — those that require cooperation from user departments

  • Ultimate — a single technique that can increase IT costs the most

Don't forget, it is important to act now, during the current budget year, since next year's budget is usually current, plus “x” percent. If you don't increase them now, your costs may be too thin to reduce when the crisis occurs.

INTERNAL — easy ways to bloat costs within IT:

  1. Shorten PC refresh

    Most hospitals replace PCs every three years due to increased price performance from manufacturers and the need to keep users happy. Why not try for every two years? You can take advantage of the latest developments and impress physicians with all the shiny new machines. It could easily add six figures to your hardware budget, plus increase payroll costs in field engineering. Then when the budget axe falls, blame administration for forcing you to increase to a four- or five-year refresh (which is closer to what users do at home anyway).

  2. Partner with vendors

    In the old days, people treated outside vendors like they were trying to sell something. In our cost-increase model, vendors should be treated like business partners and be treated with more respect to their bottom line. Stop subordinates from reviewing invoices for questionable items, or challenging any add-on fees for new products or services. Never short pay.

    A corollary is to never question how high maintenance has grown in the years since you signed a contract. A 5 percent per year CPI can increase software maintenance as high as 50 percent of the original license fee — meaning you are buying the old system again every two years! Never re-negotiate these high fees — after all, they're your trusted “partner,” not a vendor.

    And never, ever, hire a firm to review your telephone bill; most do it for free and only charge a percent of the huge cost savings they find.

  3. Maximize Microsoft

    In a quest to increase costs, no vendor can truly be a “partner” as much as Microsoft. Working with them can increase your costs as much as their dividends. For example, make sure every device has the full suite of Office, even if users only need Word and Outlook. After all, if you give users Access or PowerPoint as well, they might waste hours of payroll trying to learn them, increasing that cost as well. Don't question Microsoft's periodic audits of the number of licenses: Who else but Bill Gates knows exactly how many devices/users you really have to pay for? And if anyone ever suggests free products like Open Office, mock their technical naiveté for not appreciating Redmond, Calif.'s bloat-ware.

  4. Early adoption

    To increase costs, nothing succeeds like buying systems before their time. The biggest way to blow bucks is by buying an entire HIS within minutes of it being GA (Generally Avoidable). This maximizes the cost of reporting bugs, reveals missing features that might create ROI, and incurs the costs of installing multiple releases as the vendor's programmers slowly catch up with their marketers.

    In the PC world, a sure-fire technique is to put in Vista ASAP — the heck with the commercials! Think of the thousands or even millions you can spend upgrading all of your devices — you might even find hundreds of PCs that have to be refreshed even earlier due to Vista's appetite for memory. And the crashes and bugs will go a long way to increasing overtime and on-call budgets. What if your HIS vendor doesn't support Vista? Then shop for a whole new HIS as well!

  5. Promotions

    There's a rule of thumb in business that it takes one person to manage the activities of about 10 subordinates. In hospitals, departments vary somewhat, but the overall rule is to ensure that anyone who is a manager has enough people under them to deserve the higher title, salary, and benefits. Since you probably won't get new FTEs approved, try promoting existing ones. For example, if you have 10 analysts under a single manager, try promoting two to be supervisors with four analysts under each. This now gives the manager only two direct reports as well. Think of all the extra meetings, memos, reviews, and administrative costs this can create. If anyone challenges you, invoke how competitive IT has become: if superstars don't get promoted every few years, they may seek a job elsewhere at a less-efficient organization.

    External — these techniques require cooperation from user departments:x

  6. Distribute servers

    Your data center has power back-up, extra cooling, secure access, a disaster plan, off-site file back-ups, etc. You host the main servers for your HIS, and servers for standalone systems such as lab and PACS. But why put up with the added headaches of these ancillary servers? Just think of all the extra cost throughout the organization if every department housed its own server under desks, near water-sprinklers, in overheated and insecure closets, etc. Add the payroll costs they would incur to add computer operators to their staff to perform back-ups and install releases, and the dollars are enormous.

    Of course, the ultimate here is to distribute all servers to an outside vendor through remote hosting. They charge a fortune for what you can do for pennies.

  7. Centralize costs

    Some hospitals charge all IT costs to the IT department regardless of who “owns” the systems, whether they are HIS modules or departmental systems like pharmacy, radiology, etc. Others use “charge back” mechanisms whereby the costs for systems are allocated to user departments, which alone control how many modules they buy from the vendor, what options they turn on, etc. To increase costs, keep all costs in one huge IT budget, making them harder to control and easier to increase. After all, how can IT know about optional modules the lab has acquired or features they turned on from their LIS vendor? Therefore, IT cannot review the LIS vendor's invoice for inappropriate items! The best way to increase costs is to avoid such charge backs to user departments based on consumption, so they spend the absolute most on their vendors, with no regard for the impact on IT's budget.

    Eliminate charging for IT services too. What if a department wants to move 20 desks from one side of the room to the other? It may cost IT a bundle to rewire the PCs, printers, telephones, power outlets, etc. If you charge them for it, they may decide not to make the move. Bury costs in the IT budget, and there is no incentive for anyone to consider them in remodeling plans.

  8. Clinician negotiators

    CIOs know many effective techniques for negotiating technology contracts: competitive bids, scrutinizing hardware configuration, limiting nickel-dime charges, response time warranties, etc. The typical clinician, however, is far less skilled at obtaining discounts and negotiating terms; their primary interest is patient care, so they want to buy the “best” system, which vendors equate to the most expensive. Therefore, don't let IT anywhere near the selection and negotiation of a PACS, 64-slice MRI, computerized IV pumps, etc. CIOs may negotiate discounts, improve contract terms, or even introduce price/performance issues that are causing clinicians to consider a cheaper alternative. Instead, let clinicians spend whatever they can wheedle out of “administration,” without pesky business people from IT.

  9. Self-develop

    Vendors can spread the cost of R&D over hundreds of clients; “roll your own” and you get all the costs in your hospital. This applies to entire applications like EMRs and CPOE, as well as “minor” systems like trouble ticket tracking for the help desk, point-to-point interfaces (rather than using interface engines), and even supporting “sunset” systems with a handful of programmers on our own. Once, we even saw a hospital decide to build its own interface engine using Oracle. We didn't stick around long enough for the postmortem, but the costs for Oracle fees, an Oracle DBA, etc., must have surely been monumental. Maybe you can build something even more costly!?

  10. Ban super users

    Years ago, CIOs started to make user departments more self-sufficient by empowering them to “own” their systems. They challenged them to assign someone, either full- or part-time, to be trained by the vendor of their application, attend user groups, and even learn Microsoft basics. They would then be responsible for training new employees, coordinating releases, and answering “dumb” questions locally (did you reboot?). This technique has driven costs down in both IT and user departments. It is an anathema to increasing costs! Instead, keep IT responsible for everything in every department and IT staffing will have to be increased (both analysts and help desk), on-call and overtime will go up, and system usage will go down (meaning you'll buy entire new systems more often). Tell those user departments to just worry about their business, and leave all technology up to you. If they want to learn PC fundamentals, tell them to do it at home or get a job in a modern industry.


This one single technique can increase IT costs more than any other, and keep them high: outsourcing! Hand over your entire IT shop to an outside vendor and you immediately add their 10 percent to 20 percent profit margin on top of your costs. Sign a 10-year contract, and costs can never be reduced despite future “crises.” Lastly, by making every new project “out of scope,” you will enjoy double-digit inflation every year for the duration.

It's coming. You're going to be asked to cut IT costs. Why be penalized if you are already at rock-bottom? Use these techniques to fatten things up, and you'll be much better equipped to handle the cuts. If it's too late and you've already been asked to cut costs, maybe these ideas will help if you apply them in reverse …

Vince Ciotti, co-founder and principal with H.I.S. Professionals, LLC, has 40 years experience in the Healthcare IT industry working for both vendor and consulting firms.
Barry Mathis, also a Principal with H.I.S. Professionals, has over 20 years experience in the Healthcare and IT industries working both as a CIO and consultant.
Healthcare Informatics 2009 January;25(13):46-49

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