Punctuated by one splashy headline after another, the management decision to 'outsource' responsibility for information services has progressed from rare occurrence to familiar story during the past year or so in healthcare.
But despite a spate of long-term contracts signed in New York, Detroit, Philadelphia and other high-profile markets, executives generally continue to be wary and grudging about entrusting information technology to an outside firm, according to Modern Healthcare's 11th annual survey of information system trends.
About three in four senior executives responding to the survey say they are not considering outsourcing information services related to their fundamental administrative, financial and clinical operations. The respondents are a little more open to the possibility of farming out technical aspects of information systems such as computer operations and network management.
The survey results indicate that decisionmakers are hard-pressed to visualize the purpose and benefits of information technology outsourcing, whether it involves the systems of a specific department or the entire IT operation. But executives can easily visualize the obstacles and challenges of outsourcing, led by lack of assurance that outsourcing deals will produce the return on investment and other contractual benefits promised by vendors of outsourcing arrangements.
A series of questions on outsourcing included in questionnaires for Modern HealthcareOs 11th annual survey of information systems trends was broken out for consideration in greater detail in this issue of Eye on Info. The rest of the survey was analyzed in the Feb. 5 issue of Modern Healthcare.
Co-sponsored by Pricewaterhouse-Coopers and Zinn Enterprises, the survey polled 212 healthcare providers, both single-hospital organizations and multiple-facility systems. In all, the survey represents 455 hospitals with a total of 109,399 beds. Single-hospital organizations, which account for about 55% of the sample, average 317 beds and $198 million in annual revenue. Multiple-hospital organizations average 3.3 hospitals and $630 million in revenue.
About 10% of respondents to this year's survey say they have signed a contract or intend to sign with an outside contractor for all information system functions, both currently operating systems and new projects to enhance the information services of their organization. That's slightly higher than the 8% of respondents in last yearOs survey who were ready to commit to the option. In addition, 12% in this year's survey say they haven't made a decision but are considering the option, up from 7% a year ago.
Blockbuster deals on such a scale have proliferated in the past 18 months, including:
* A 10-year, $1 billion contract between seven-hospital Detroit Medical Center and CareTech Solutions of Southfield, Mich.
* A five-year, $82 million deal between Henry Ford Health System of Detroit and Covansys of Farmington Hills, Mich.
* A seven-year, $228 million contract between 31-hospital New York-Presbyterian Hospital and Health System and First Consulting Group of Long Beach, Calif.
* A seven-year, $350 million contract between three-hospital Continuum Health Partners of New York and Cap Gemini Ernst & Young of New York.
* A 10-year, $270 million deal between 15-hospital St. Joseph Health System of Orange, Calif., and Perot Systems Corp. of Dallas.
* A five-year, $100 million agreement between three-hospital University of Pennsylvania Health System of Philadelphia and First Consulting Group.
But even with the budding momentum for outsourcing all IT operations, nearly 80% of this year's respondents nevertheless are not considering the possibility at all (See chart, p. 4).
And when it comes to outsourcing pieces of the overall IT infrastructure, the small minority of senior executives who were willing to enter contracts a year ago has dwindled even more, says Tim Zinn, president of Rancho Santa Fe, Calif.-based Zinn Enterprises. For example, 11% anticipate contracting for clinical information services compared with 14% in 2000, and 9% are at the signing stage for administrative or financial systems, a decrease from 12% a year ago.
Inversely, more provider organizations are at the stage of weighing the outsourcing option, Zinn says. About 16%, for example, say they are considering outsourcing clinical information services compared with 8% last year. And 14% are giving administrative or financial systems some thought, an increase from 9% a year ago.
Multiple layers of skepticism are at work underneath the reluctance to consider the outsourcing route. First of all, 40% of respondents say it's a challenge for them to ensure that contractual benefits are realized. That challenge is complicated by the problem of developing meaningful measures to ensure vendor performance. And a significant number of executives say the problem goes beyond holding contractors to promises -- they need to be certain that vendors even are capable of doing what they promise to do (See chart, p. 4).
Asked for reasons why they would consider an outside company for some or all of information systems functions, nearly half say it would be their inability to attract and retain the necessary personnel or resources to get the job done. About a third say theyOre intrigued by the prospect of sharing in cost savings from the extensive expertise of an outside company.