Continued from p. 64processing could be done cheaper, the deal called for part or all of a hospital's base of hardware and software to be sold to the outsourcing firm and the proceeds used for other hospital purposes (July 15, 1991, p. 35).
Hospitals and health networks that want to unload older mainframe technology and focus on the task of re-engineering can contract for that traditional brand of outsourcing, turning operations over to an outside firm and getting the asset value in cash to apply toward re-engineering, Naranjo said.
Some information systems firms install the new technology and software to upgrade the clinical and networking operations of a health network.
ISSC doesn't supply software of its own, but it installs and runs components of its clients' choosing, Naranjo said.
Others have staked their strategy on buying a specific software line and building an industry-specific capability around it, such as Alltel Corp.'s acquisition of TDS Healthcare Systems Corp. in 1993 and its assimilation of TDS into its subsidiary, Alltel Information Services.
For health networks that want to bring in new skills and information technology but are running on a small profit margin and can't afford the upfront cost, outsourcing can "smooth out the crease" of re-engineering by supplying the new capabilities and then spreading the cost over a period of time, Naranjo said.
With those new re-engineering and capital needs on top of the existing cost-containment objectives, Sentient Systems estimates that outsourcing will increase from a historical level of 9% to 15% of total healthcare information systems spending to as high as 19% during the next several years, said Joel French, vice president of healthcare services.
As many as 40% of healthcare organizations will consider information systems outsourcing, he said.
For hospitals that buy their own information technology for the managed-care era, an outsourcing company can provide what amounts to an "insurance policy" for the capital gamble, said Hi-Desert's Strange.
The CIO brought in by Sentient Systems "has a level of expertise that simply wasn't available in our organization," said Strange, who had been directing computer tasks and was "finding it difficult to maintain the current skill set that's allowed me to be successful."
Up to now, he's overseen information systems as part of his CFO responsibilities-a managerial duty he said is fairly common among CFOs at smaller hospitals. But the information job now needs more than part-time attention and savvy, and spinning off that job also frees him to focus on mounting financial challenges other than computerization, he said.
With a full-time CIO on board and the support of Sentient behind him, the arrangement "shortens our learning curve because (Sentient) brings the expertise of what's happening out there in the marketplace," Strange said. Hi-Desert expects to do a better job of realizing the full potential of its new systems while "getting a jump start on the process" instead of taking the time to educate its staff first, he said.
But Hi-Desert isn't ready to put more than management into Sentient's hands just yet.
For one thing, the outside information systems management firm would charge a lot more to oversee the entire data center, said Strange. For another, "I'm a little nervous about handing over the whole thing," he said. "We've chosen to take a baby step by having the management outsourced first." The contract is indefinite and subject to periodic review.
For the rural hospital district, just the $150,000 for the CIO adds considerably to the upfront cost of its $2.5 million information systems replacement project. But the payback is in the adequate preparation for the new technology.
"By spending more on the front end, we expect a greater return on the back end," said Strange. "We're not going to save money from day one. What we're going to be saving (will come) in the months ahead."