As healthcare organizations race to put increasingly powerful information tools on desktops throughout their facilities, they are benefiting from the computer industry's innovation.
Personal computers linked together in networks are getting faster, cheaper and more sophisticated in the way they can handle new software chores.
But chief information officers are learning that innovation has its costs. And the costs of operating and renewing their PC networks are mounting, even as the prices of hardware and software are heading lower.
The purchase price of computer gear is only the beginning. When training, installation, network management and normal wear and tear are factored in, the overhead in time and equipment can add up to millions of dollars more, industry observers say.
"Industry studies have shown that the initial hardware price tag represents only 14% of the total cost of owning and operating a personal computer in a business environment," says James Burgess, vice president of information technology solutions at VHA, an Irving, Texas-based healthcare alliance.
"Research has shown that the five-year cost of ownership for a single PC workstation is more than $44,000 in an environment with several thousand PCs," Burgess says.
That expense doesn't take into account the opportunity cost of inflexible hardware-buying approaches that lock organizations into technology soon to be overtaken by new products, says Larry Blevins, senior vice president of technology at Fort Worth, Texas-based Harris Methodist Health System.
Such inflexibility can prevent a provider's information network from bringing in the best available hardware and software to address quick-developing business issues, Blevins says.
Defining the problem. Healthcare networks are expanding their use of information systems partly because they need to get a handle on their clinical and administrative costs. Only then can the networks improve their operations.
Ironically, that expansion may be creating the same problem in information systems operations that the healthcare networks are trying to solve in other departments, Blevins says. Organizations can't even define the costs of operating a PC network, much less devise a systematic way to operate the network more efficiently, he says.
"We're treating the PCs the same way we did in the 1980s," Blevins says. That's when a department bought some computers-each operating alone instead of in a network-then plunked some programs in, figured out how to use them and hollered for a technician when the computer screen froze.
But the healthcare environment has changed completely, and that calls for change in the way computers are used, Blevins says.
It took 18 months of study to map out just what Harris Methodist was spending on PCs, including the troubleshooting "help desks" and rapid-response teams ready to fix what breaks down.
That study led to the hiring of a vendor to take over management and updating of the network for a fixed, "capitated" fee.
Harris Methodist forecasts savings of nearly $1 million on network operations in the first year of its five-year contract with Daou Systems, a San Diego-based designer and manager of healthcare computer networks.
That's a reduction of about 40% from the current projected annual cost of managing nearly 5,000 PCs at 10 facilities and a health plan of more than 4 million enrollees in 41 counties, Blevins says. The total value of the contract to Daou is $7.5 million.
For that money, Daou will provide expertise on cutting-edge technology, which can make Harris Methodist quicker on its feet when backing up new business opportunities with computer support.
"We're advising our clients to move away from the break/fix model of PC management and support," says Georges Daou, the company's chief executive officer. "In the past, the end-user would call the equivalent of a Maytag repairman to fix hardware or software problems with the PC. Daou proposes to re-engineer that process and take a quality-team approach," in which Harris Methodist and Daou work together to implement a comprehensive information strategy.
Blevins calls the arrangement "managed care for the PC."
VHA's initiative. At VHA, an initiative called Desktop Management Solutions has been formed in response to CIOs at member organizations lamenting that they need to get a handle on the cost of PCs and "take the burden of constant work off our shoulders," says Marg Heeney, VHA's senior director of information technology solutions.
VHA laid the groundwork by forging alliances with three companies to help member hospitals and health systems reduce the cost of purchasing and operating PCs, Heeney says.
Under terms of the agreements, VHA says it will provide overall management of the program and offer "competitive pricing" for PC hardware, software, technical support, warranty, maintenance and integration of PCs into members' information networks.
Entex Information Services, based in Rye Brook, N.Y., will provide hardware procurement services, computer-system configuration, installation assistance and the services of a "help desk" to field problems from users.
MFP Technology Services, based in Toronto, will provide an option to lease computers and related equipment instead of locking into purchases. DecisionOne, based in Frazier, Ore., will provide on-site PC maintenance.
The program "will essentially allow hospitals to outsource the PC ownership responsibilities and focus attention on how they can more effectively analyze and use data to improve patient care and operations, rather than focusing on system upgrades and networking problems," Burgess says.
About 75 organizations have indicated interest in the program since it was unveiled last spring, Heeney says. Depending on the specific predicament of a member organization, the program could save the member from 5% to 50% on those services, she says.
Heeney adds that Daou Systems also will contribute to the program under a previous agreement with VHA to assess software and hardware assets of providers and consult on design improvements (July 14, p. 38). But Daou's fixed-fee PC management initiative amounts to a competitive alternative to the VHA program's central features.
During negotiations on Daou's network design and implementation deal with VHA, "one of the things we actually looked at was desktop (PC) support," says Craig Collins, a company spokesman.
But Daou "just didn't want to cross over into that area, mainly because VHA basically looks at the desktop from an equipment cost perspective . . . whereas we're looking at it from a knowledge-based approach," Collins says.
That approach centers on "performance objectives and service levels and an understanding of the network and how the desktop (computer) ties into the network," he says.
Looking ahead. Daou's contract with Harris Methodist builds forward-looking strategies into a capitation agreement that takes care of day-to-day PC work while seeking to anticipate opportunities for new technology, Harris Methodist's Blevins says.
Daou will charge on a per-user, per-month basis, similar to the capitation arrangement in many managed-care contracts.
To get to that point, both partners had to nail down the expense history and scope of operation to be covered. During the 18-month study conducted at Harris Methodist, a six-step PC expense cycle was identified to get a handle on the total cost of operation (See chart).
Just as important as cost control was breadth of technical skills, Blevins says. In-house computer pros were improving their skills continually, but they always had to start from scratch in understanding innovations such as Internet-style programming and networking.
Without skilled people to introduce those innovations, "I may try to force yesterday's solutions to solve tomorrow's problems, and they may not fit," Blevins says.
The contract also allows for flexibility to replace equipment, so Harris Methodist can take advantage of fast-moving hardware and software improvements.
From a technology standpoint, PCs can become obsolete every 90 days or so as new models take advantage of more sophisticated technology and software, Blevins says.
But replacement decisions will be driven by business needs, not technology needs, he says. If a department introduces a new service and can gain a competitive edge by quickly adopting available computerization, Harris Methodist will have such latitude.
The contract also should enhance Harris Methodist's ability to respond to rapid growth. For example, if the system suddenly needs 400 new PCs, the contract provides a fast track around board approval and ordering procedures. Harris Methodist then can match the technical response with the business window of opportunity, Blevins says.
And Daou will have the asset-management latitude to move the existing computers among a 5,000-unit pool or one of its 450 other clients.