Baylor Health Care System became the latest healthcare organization to pull the plug on a long-term outsourcing agreement for important business functions, announcing it was terminating a 10-year, $200 million contract for billing, collections and revenue management after one year.
Modern Healthcare first disclosed Baylor's decision in its Daily Dose electronic newsletter on May 8.
The contract between 11-hospital Baylor and EDS, a global provider of information technology and computer services, was introduced with fanfare in an April 2002 news release as an "innovative" contract "aimed at combating the rising cost of healthcare by simplifying administrative processes for patients and providers."
The contract called for renegotiation of pricing and service levels at the end of the first year, and Plano, Texas-based EDS could not reach a pricing agreement with Baylor, EDS spokesman Ken Smalling said. He declined to be more specific.
In a written statement, Dallas-based Baylor said, "Both parties agreed that the contract was not meeting its original intent and could not mutually agree upon pricing." A spokeswoman declined to elaborate. Baylor said it would bring business services back within its organization effective July 1.
The announcement came one day after EDS announced financial results for the first quarter of 2003 that included a $334 million write-down of a $7 billion outsourcing contract with the U.S. Navy and Marine Corps. The write-down represents the cumulative loss expected in supplying an intranet for the military services, an admission that the contract will never be profitable. EDS reported a net loss of $126 million on revenue of $5.4 billion, compared with net income of $354 million during the same quarter of 2002 on revenue of $5.3 billion.
In its agreement with Baylor a year ago, EDS was to deliver a comprehensive range of services that it said would transform Baylor's revenue management cycle and reduce the healthcare system's administrative costs 10% to 15% by digitizing billing and collections.
Although "a technology bag of tricks" is a part of creating economies of scale, the success of outsourcing the revenue cycle operations of a healthcare system also requires industry-specific expertise, said Robert Holster, president of the holding company for Accordis, an EDS rival in business office outsourcing.
Dissatisfaction with an outsourcer's performance led Detroit Medical Center in February to sue to dissolve a 10-year, $300 million contract with Provider HealthNet Services, Dallas, for medical records management, also one year into the agreement. Detroit Medical said the outsourced operation failed to achieve timely completion of medical records and had not delivered on a plan to train employees and organize the department for computerized records. Provider HealthNet said uncooperative and obstructive action by Detroit Medical officials caused the performance problems.
Donald Ragan, Detroit Medical's chief information officer, said the suit is pending but "we expect to end up exactly the same as Baylor."