When Detroit Medical Center executives decided to make an outside contractor responsible for all information systems and services, they meant it.
"Everything is in (the contract)," said Don Ragan, senior vice president and chief information officer, quickly settling the question of what's included and excluded in a 10-year, $1 billion agreement with Compuware Corp. "If it wasn't anticipated, it's still covered."
Compuware's accountability for all hardware and software is part of a sweeping plan to make information technology a force for productive change instead of just a set of projects built to specifications, Ragan said.
By cutting the contractor in on the fruits of efficiency from better financial and clinical management, Detroit Medical Center hopes to gain an active technology partner with incentives to suggest and spearhead initiatives that pay off for both sides.
The partnership, launched in August, is similar to an arrangement reached earlier this month between Harvard Pilgrim Health Care, a Brookline, Mass.-based HMO, and Perot Systems Corp., a Dallas-based information services company (Oct. 18, p. 43).
Both agreements tackle healthcare operations in severe financial crisis and treat information systems management as a vehicle for long-range gain, not just a way out of a jam.
"Information technology is key to healthcare leadership now and well into the future," said Arthur Porter, M.D., DMC president and chief executive officer.
The contract, he said, is designed to "create a long-term alliance and partnership between DMC and Compuware, focusing on technological performance, economics and future growth for both organizations."
Though DMC aims to strengthen the alliance with rewards for performance, the incentives cut both ways. Unmet objectives and unattained benchmarks will penalize Farmington Hills, Mich.-based Compuware, Ragan said.
"We measure the success of the (information systems) group based on the success of the organization," Ragan said. For example, one benchmark will measure increases or decreases in the number of days a bill remains in accounts receivable. Depending on results, revenues will be added or subtracted from Compuware's take.
DMC badly needs good results after posting a $106 million loss on revenues of $1.7 billion in 1998, more than double the loss estimated. So far this year it has laid off 1,800 employees and closed Sinai Hospital in Detroit. The Sinai nameplate then was added to Grace Hospital, also in Detroit, to form Sinai-Grace.
The loss in 1998 was largely because of a $46 million write-off for the relocation of services formerly provided at Sinai. The number of employed physicians throughout the system was reduced to 180 from 300, and more staff reductions are planned at Sinai-Grace.
Porter estimated that the arrangement with Compuware will save $90 million in administrative expenses during the 10-year term. Nearly all the 350 information systems employees working at DMC were hired by the contractor, leaving Ragan as the only information systems professional the hospital employs.
Computer personnel expense is expected to decline 15% the first year and 30% thereafter, Ragan said.
Supplementing the Compuware team of former DMC employees will be other experts the contractor brings in for specific initiatives, starting with a $12 million push to improve computer-network monitoring, step up response to problems from computer users and harness the potential of Internet technology, he said.
Compuware will be held to traditional performance objectives of information systems outsourcing, such as computer-network availability and the percentage of time computers are operating. But merely installing the systems and keeping them running well are not the only issues.
It's what the systems accomplish that matters, Ragan said. Computer servers and software can be available 100% of the time, "but if they don't do the job, then what good are they?"
Healthcare providers usually negotiate with information systems suppliers on a set of features, functions and technical specifications. Typically the vendor maintains that its responsibility is to build a system to those specifications, rather than refine the system after it has been implemented until the desired results are achieved, Ragan said.
Hospitals and physician groups are warming to the idea of putting vendors at risk for the performance of their wares.
In MODERN HEALTHCARE's 1998 survey of information system trends, 65% of respondents said they would make a purchase decision for a networkwide clinical system sooner if a vendor shared risk during implementation (Feb. 23, 1998, p. 86).
And in November 1998 survey by the Millennium Health Imperative, a think tank of executives from a number of healthcare organizations, 88% of respondents agreed that information technology companies should offer shared-risk options.
Diving into the most extreme of risk-sharing deals, Compuware faces the initial challenge of completing the integration projects under way at DMC's seven hospitals, two nursing centers and more than 100 outpatient facilities scattered throughout southeast Michigan.
But that's just the beginning. Ragan said those systems and future additions must affect clinical and administrative processes, elevating the role of information systems in the climb back to profitability. "It wasn't that IS was a cause of the problem. It's that it wasn't part of the solution," he said.
As its financial woes mounted, DMC moved from facility to facility, standardizing clinical systems developed by Kansas City, Mo.-based Cerner Corp. and healthcare business applications developed by Malvern, Pa.-based Shared Medical Systems. About 90% of the work had been done when Compuware arrived on the scene. "We were in the 11th hour of implementation but 18 months behind schedule," Ragan said.
About 80% of the hospital system's desktop computers also were upgraded as part of the Cerner system implementation. Compuware will upgrade the rest of the PCs. From there, all computers will be on a regular upgrading schedule so that at the end of the contract term, the computer inventory will be current, Ragan said.
Beyond that, he said, there are "lots of individual applications that could be helping us do things better," such as checking for insurance eligibility of patients and scrutinizing claims data to eliminate errors.
Because Compuware is getting paid for business results as well as for building and running information systems, the central premise is that the contractor will willingly participate in process improvement, even initiating proposals, Ragan said.
By the same token, the contractor has a right to oppose projects proposed by DMC based on good business practices. For example, a system for storing and distributing electronic images would be an expensive proposition at about $60 million, including implementation costs. It would be up to Compuware professionals to gauge the cost and benefits, protecting the DMC's interests as well as its own.
"They have to say no to that if it causes us to go bankrupt and doesn't provide any return on investment," Ragan said. A difference of opinion would go through an appeals process.
Alternatively, both sides could decide to jointly put money into a project that might not otherwise gain approval under the contract. Then whatever costs were saved would be split with the contractor, he said.