Dick Hutsell is vice president and CIO at Daughters of Charity Health System, a regional healthcare system of six hospitals and medical centers spanning the California coast from the Bay Area to Los Angeles. The 1,662-bed system has been serving Northern California for 152 years and is based in Los Altos Hills, Calif. Recently, HCI Associate Editor Kate Huvane Gamble spoke with Hutsell about the organization’s decision to continue outsourcing several of its IT functions.
KG: How long have you been in your current position?
DH: I have been CIO at Daughters since they were re-formed in January of 2002. Just to give you a brief history on the organization, Daughters of Charity Health System existed as part of a national health system from 1985 to 1995. And it 1995, we merged with Catholic Healthcare West. Then in 2002, we left Catholic Healthcare West and formed the Daughters of Charity Health System.
I’ve been associated with the Daughters of Charity really since 1986, in various capacities.
KG: I wanted to talk about your outsourcing agreement with Perot Systems. This is a topic that our readers are very interested in right now. I saw that you recently signed at extension — when did you first starting using them?
DH: It dates back from the summer of 2002 when we signed the initial agreement. When we left Catholic Healthcare West, we actually bought ourselves out and reestablished the health system. We went through an evaluation of in-house IT versus outsourcing, looked at who were, at that time, the leading outsource vendors and selected Perot. We signed an agreement with them in June or July of 2002, and we just extended that agreement last month (in December 2008). We extended the term of the agreement another seven years from June/July of this year for another seven years.
KG: So you decided that going with an outside party to handle IT was the best way option at that time?
DH: When we separated, we basically did not have rights to IT staff. So we had to find some way to deliver IT and outsourcing was the easiest way for a brand new organization to kind of bring in an IT staff that had some knowledge of our particular environments and could do it quickly.
KG: When you made the original agreement, was the deal that Perot would handle all IT functions?
DH: At that time, yes, it was all of the IT functions. It was project management, application support, infrastructure and operations — basically everything.
KG: How has the arrangement changed or evolved over the years?
DH: That has changed a little bit. I have, on my staff reporting to me, the key strategy people and kind of an in-house contracts function. And then, where it’s made sense from an availability standpoint, I have certain other application systems that are outside of Perot Systems. For instance, PACS is outside of it, the HR/payroll environment is outside of Perot, and that’s basically as much of the resources that we apply to those projects that we did not want to move from being Daughters Hospital employees to Perot employees. So we established an IT function that allowed that to happen.
We have always kept telecommunications strategy as something that we deliver outside of Perot and the other things that are outside of Perot are medical device strategy and implementation — so MRIs, CAT scans, etc. We do that under IT and that’s independent of Perot.
|KG: Is this something that was established in the agreement?
DH: Yes, it’s built into the agreement. We have the option to either do it internally or outsource it to Perot. We also have the ability to — on a new project — use any staff, whether it’s in-house, Perot, or any other consulting firm.
KG: I would imagine that you’re constantly evaluating the situation to make sure that it meets your needs at a given time.
DH: Right, we look for what makes the most sense, from a cost standpoint, from a service standpoint, and really what we call an employee’s associates standpoint. So if they’re more comfortable working within or as an employee of the Daughter’s organization, then we’ll do that.
But we never entered into an outsourcing agreement with the expectation to reduce costs. It was the availability of qualified resources and it was the ability of the outsource firm to offer the career expectations in the IT world that a hospital IT organization can’t. We can’t really offer the career growth and the training that a more professional firm can offer. That has always been one of the drivers for outsourcing and it continues to be.
KG: As CIO, how closely engaged are you with Perot’s staff? Are there designated meeting times or does it depend on what types of projects are in the works?
DH: Basically, Perot is right now 85 percent of my IT staff. We view the organization not as contracted outsource folks and some inside folks — it’s just one staff. We meet as a group weekly to discuss general status issues, and my IT director meets with separate groups much more than I do to talk about projects and strategies and things like that. But the executive team is very engaged, and I’m personally very engaged in working with them.
On my org chart, the account executive is one of the direct reports to me and so he’s treated like that. And basically the Perot gang is treated like just another division of my IT staff.
KG: In signing the extension, are you making any changes to the agreement, based on what you have coming up down the pike?
DH: We are probably going to keep it as it is right now. We are not, with the exception of the projects we’ve started, we aren’t looking at doing anything new and exciting until the economy turns around.
KG: Yeah, we’re hearing a lot of that right now, not surprisingly. But as far as the deal, if it got to a place where it didn’t make sense financially for Daughters to continue to outsource certain functions, can you then bring those in-house as needed?
DH: We have a lot metrics around service delivery. And we have some language in our agreement that if they fail to meet those metrics, we have the right to bring that service in-house. We look at that, and it’s really going to be focused more on delivery of service that it is on cost. Because the cost of the contract is fixed; we know what that’s going to be.
If they fail to deliver what we expect, then we can go through a process to bring that in-house if we have to.
KG: What are some of the challenges that you’ve experienced in having this type of outsourcing agreement?
DH: I think with an outsource agreement, there’s always going to be some conflict between us, our field team of Perot folks and their corporate office. Perot and all of the other outsourcers are in this business to make money, and I’m trying to minimize my IT costs. So there’s an inherent conflict there, but we have quite frankly never really had a problem with it.
But it’s there, and I know that in other outsource accounts, that’s been a big problem. But for us, it really isn’t. We have a very open relationship with their senior executives in Plano, Texas, and so think that in general, they understand where we’re coming from and we understand that they need to make a margin. But we just tell them, don’t make too big of a margin off of us.
KG: It seems that having established expectations is certainly a key to success. What else would you say is important?
DH: I think certainly that defined expectations and service levels are key. I think the other thing that we are somewhat unique on is we go through great pains to make them part of the organization. They are not viewed was Perot; they’re viewed as Daughters of Charity IT associates. We do a number of things that really try to kind of foster that oneness environment, and I think that clearly has been a big factor, in not only the Perot staff’s satisfaction, but just overall satisfaction with IT in general.
KG: I’m sure it can be easy to get into the “us versus them” game.
DH: Absolutely. But we don’t allow that to happen. If there’s an issue with IT delivery, it’s an issue with IT delivery — it’s not a Perot issue.
KG: What other advice can you give to other CIOs who are thinking about or are already involved in an IT outsourcing relationship?
DH: One of the other things we do that I don’t know if everybody does is we conduct customer satisfaction surveys. We do it on helpdesk calls, which gives us real-time satisfaction results, and we do a series of annual surveys with various groups of the organization. We do it with the executive teams at our hospitals and at the system level and we do it down through director and manager level as well. We use that to kind of benchmark overall performance trends of IT, and Perot in particular. That has been in place ever since we started the agreement and that’s published to the organization, so the organization sees how everybody else views IT and Perot.
The results have shown year over year improvement since we started, so if there’s somebody out there — a hospital CEO or system level vice president — who is complaining about IT support, they really have no validity and no support because the data shows that the IT organization is performing really at above expectations, and has been improving since we started.
KG: And anyone in the organization can access that information?
DH: Yes, everyone can see it.