In the far reaches of north-central Pennsylvania, healthcare technology giant Siemens Medical Solutions has stepped aside to allow one of its most valued hospital customers to compete against the technology firm, wielding Siemens' own signature healthcare information product.
Last month, Siemens announced that Susquehanna Health System in Williamsport, Pa., had become its first customer to go live in both clinical and financial areas of its three hospitals on Soarian, Siemens' first soup-to-nuts healthcare information system since the Malvern, Pa., technology company acquired Shared Medical Systems, or SMS, in 2000.
What Siemens did not mention was that Laurel Health System and its flagship 83-bed Soldiers and Sailors Memorial Hospital in Wellsboro, Pa., had gone live with an earlier version of Soarian financials a year before in June 2003. Laurel Health's information technology outsourcer, Susquehanna Health System, wired Laurel Health even before Susquehanna -- and at a price that Siemens and Susquehanna officials acknowledge was significantly less than it would have been if Laurel Health had gone to Siemens directly. Laurel Health plans to go live with the clinical side of Soarian in late fall or early winter. After that, 21-bed Jersey Shore (Pa.) Hospital will step up to the plate with plans to piggyback onto Susquehanna's Soarian system.
Both Siemens and Susquehanna officials agree that Laurel Health and Jersey Shore are strictly Susquehanna's customers -- not Siemens'. It is one of the more schizophrenic relationships between healthcare vendors and hospitals at a time when U.S. hospitals are frantically searching for the funding to bring them technologically in step with the 21st century.
"The relationship between Susquehanna and Siemens is a unique relationship as they are a unique partner of ours," said Brenna Quinn, vice president of Siemens' Soarian Solution Introduction. "We do not sell Soarian to our customers to turn around to be outsourced. That's not our model. That's not a standard practice."
Susquehanna offers a model for small, rural hospitals that can't afford to purchase their own information technology systems yet can't afford not to, said Pamela Wirth, Susquehanna's vice president, chief information officer and architect of the outsourcing agreements. Whether vendors like it or not, provider-to-provider outsourcing may be the wave of the future. Wirth preached her gospel on the power of rural outsourcing partnerships to the Healthcare Information and Management Systems Society in February and the Institute of Medicine in March.
"It's all about the money," Wirth said, referring to negotiations with vendors. "Every vendor has a different relationship with each of their clients. I think the whole world is changing and the innovation we are doing here is something people may see more of. ... We just happened to think of it before anyone else."
The Bush administration, which last month unveiled a road map for making electronic health records a universal standard within 10 years, estimates that only 13% of hospitals in the country have adopted the technology necessary to provide electronic medical records (July 26, p. 6). Two of the earliest and most unlikely adopters will be Laurel Health and Jersey Shore by virtue of their relationship with Susquehanna.
The rural Pennsylvania hospitals are the envy of Walter Becker, president and chief executive officer of 78-bed Carthage (N.Y.) Area Hospital in the rugged Adirondack Mountains. Carthage's operations now run on an outdated "mom and pop" system, purchased 10 years ago, that has failed to keep up with the times, Becker said. Carthage's nurses still have to hand-write orders for blood tests and X-rays. So Becker said he has been evaluating an IT system developed by Medical Information Technology, or Meditech, in Westwood, Mass., that is being subcontracted by a hospital neighbor 70 miles north, 94-bed Canton-Potsdam (N.Y.) Hospital.
Purchasing the Meditech system directly "would cost us $1.5 million to get it in the door. If we go through (Canton-Potsdam), it's just a monthly fee," Becker said. "We have to do something, and I don't want to invest $1.5 million for hardware in this hospital. I can't afford to do it."
Siemens, which launched Soarian in October 2001, one year after its acquisition of SMS, touts the product as the most integrated, state-of-the art health information system on the market today. Incorporating a "workflow engine," the Web-based system does more than passively collect data, operating much like an air traffic controller to coordinate tasks throughout a hospital and "trigger events to occur so you don't lose time and efficiency," Quinn said.
Soarian's popularity soaring
To date Siemens has 156 signed global contracts for Soarian -- 138 of them in the U.S. -- representing more than 70 customers, Quinn said. Siemens will not disclose the price of Soarian, but the cost to a hospital depends on the size of an organization and "the level" of what it buys, Quinn said. Soarian evidently does not come cheap. Last month, for example, Catholic Health System in Buffalo, N.Y., announced a 10-year, $100 million strategic alliance with Siemens. Siemens' "unique ability" to help CHS develop an integrated electronic health record with Soarian was described by CHS officials as "critical" to the alliance. Meanwhile, last May, debt-ridden Baptist Health System in Birmingham, Ala., said it was pulling the plug on its multimillion-dollar effort to install Soarian software in favor of an older Siemens' product. Baptist "wanted to re-prioritize their capital investments," Quinn said.
Susquehanna has been a "beta site" -- a tester -- for Soarian financials since its 2001 launch based on a long-standing relationship that predates Siemens' acquisition of SMS, Quinn said. In return for Susquehanna's willingness to pioneer the system, providing feedback that is incorporated into the development process, Susquehanna enjoys a significant discount that is passed on to Susquehanna's customers -- Laurel Health and Jersey Shore.
The two hospitals were grandfathered into the Soarian beta agreement based on pre-existing agreements Susquehanna had to provide all IT services to Laurel Health since 1997 and to Jersey Shore since 2001. Over the years, Wirth said, she has negotiated with all of Susquehanna's dozen or so IT vendors in the same way. Some are more willing than others to allow Susquehanna to outsource their products without paying the full licensing price for Jersey Shore and Laurel Health, she added, conceding that Siemens probably wouldn't be willing to allow other customers to outsource Soarian as Susquehanna has.
"(Vendors) may not be making as much money as they would if they sold to individual hospitals. However, most of these small hospitals couldn't afford to go out and buy these systems," Wirth said. "This is one of the ways to make it more affordable to buy it. It's a win-win for the vendors because the vendors will get business they otherwise wouldn't have gotten."
Susquehanna provides all IT services on a cost-based contract, which allows Susquehanna "to spread out our overhead" but does not generate any extra revenue for the hospital system, Wirth said. "I can add additional staff and Laurel gets the benefit of that staff. It gives depth and breadth to my staff and allows me to have more expertise." The reduction in overhead allowed her to roughly double her staff to its current level: 54 employees, including five registered nurses who are assisting in software development.
Joe Bubacz, Laurel Health's CIO, said the relationship with Susquehanna was sparked by Wirth, who first proposed an outsourcing arrangement in the mid-1990s, about the same time Laurel Health was shopping for a new information system. Laurel Health narrowed its choices to an SMS system, and then rekindled discussions with Wirth, who was offering the exact same system. Laurel Health signed a five-year contract with Susquehanna that has been extended twice and is due to expire in 2007.
The biggest advantage in choosing Susquehanna instead of SMS directly was that the IT system was already in place at Susquehanna and the expertise was only 50 miles away, Bubacz said. Laurel Health would have had to pay about $1 million if it had purchased the system independently and probably saved at least 30% in software licensing alone by outsourcing with Susquehanna, he said. Using Susquehanna's IT staff to install the system saved additional money, he said.
Saving time, saving money
Bubacz's IT staff now includes just a "help desk" person and himself. For what's been put in place by Susquehanna, he would need a staff of about 12, he said. The contract with Susquehanna allows him to bring in Susquehanna staff only when he needs them. Bubacz noted that there are always pros and cons to outsourcing. "The best of it is the cost savings and the access to resources that we may not have had," he said. "The worst part is -- it's difficult to point out the worst part. It's just adding that extra step for implementation or coordination."
Unlike Laurel Health, which began talking to Susquehanna only after it had already decided on an IT system, Jersey Shore evaluated Susquehanna just like any other vendor. Four years ago, when the critical-access hospital decided to replace its outdated IT system and wire up some clinical operations for the first time, there were not a lot of options, said Lou Ditzel, Jersey Shore's president and CEO.
"Most systems were geared for large operations. The cost was a little frightening, and some of our goals were just not going to be affordable," Ditzel said.
Jersey Shore, 15 miles west of Williamsport, investigated a smattering of IT vendors, including SMS, Meditech and Susquehanna. Susquehanna was in fact competing directly against its IT vendor at the time, SMS. But the ambitious rural health system beat its vendor on all the parameters, especially cost, Ditzel said. Jersey Shore's decision "was based on the fact that they fulfilled most of the primary objectives -- and then some," Ditzel said. "Some of the programming that would become available (from Susquehanna) was not even on our radar." Ditzel estimated that if the hospital had gone directly to an IT vendor, initial costs would have run about $1 million. The five-year outsourcing arrangement probably cut the start-up costs for Jersey Shore in half, he said.
Despite its size, through its rural partnerships Jersey Shore has been able to wire up its 12 radiologists throughout its service area encompassing two counties. The hospital expects to be filmless in another 18 months, and Ditzel said he is confident that Jersey Shore's doctors will have access to a wireless order-entry system in three years. The information system collaboration eventually will enable Jersey Shore to centralize its pharmacy staff in one automated location, cutting costs and, most importantly, reducing medication errors, he added.
"Just about everything we try to do strategically is going to depend on information and the technology that moves that information," Ditzel said. "We can't afford a mistake in such a small environment. We believe technology makes the difference in small settings in terms of the healthcare you deliver. ... The constant challenge in rural healthcare is to bring state-of-the-art medical intervention to neighborhoods that years ago didn't have it, and technology is the reason."
For some, outsourcing not an option
Outsourcing Soarian is not for everyone. The 223-bed Chester County Hospital in West Chester, Pa., which is a Soarian clinical beta testing customer, would have no interest in outsourcing to other hospitals, said H.L. Perry Pepper, Chester County's president and CEO. Soarian is in many ways a customized application, and hospitals could probably only outsource it to hospitals that operated very similarly, he said.
"It doesn't smack of the wave of the future, but I've been wrong before," Pepper said. "It's a complex relationship that we've not had the opportunity or appetite to explore and at this point, I find it a very remote possibility."
Outsourcing is more prevalent at Siemens competitor Meditech. Though the company would not disclose the exact numbers, a small percentage of hospitals, such as Canton-Potsdam, are subcontracting Meditech IT systems to other hospitals, said Richard Hiller, Meditech's marketing consultant. Canton-Potsdam's first customer was 20-bed Clifton-Fine Hospital in Star Lake, N.Y., in 1994. In the years since, Canton-Potsdam has added to its slate of customers 87-bed Edward John Noble Hospital of Gouverneur (N.Y.), 214-bed Lewis County General Hospital in Lowville, N.Y., and 52-bed River Hospital in Alexandria Bay, N.Y. Canton-Potsdam declined to share how much it earns on such ventures, but it's "not a major number," said Cliff Westerling, its vice president. "What we really want to do is make sure we have a system that works in conjunction with other facilities, and it's led to other opportunities for cooperation. That really is the major driver."
Meditech's pricing matrix, which is based on the number of hospital beds, saves Canton-Potsdam's customers 30% from what they would pay Meditech directly, Hiller said. Meditech allows such arrangements "because there are hospitals that need a system, and they wouldn't be able to get it otherwise," Hiller said. "We're in the business of selling software to hospitals and whatever we can do to get our system in to them -- that's what we like to do."
Stephen Potter, Canton-Potsdam's CIO, said initially it was difficult to persuade Meditech to allow outsourcing, but the long, icy distances between the Adirondacks' small hospitals eventually convinced Meditech that Canton-Potsdam could make installation a less daunting proposition.
"I think Meditech figured out it was a good deal -- that they can make their own base bigger by letting other hospitals do exactly what we're doing," Potter said. "A 60-bed hospital can have the benefits of a full-blown information system and, with us providing implementation, we can do it a lot cheaper than Meditech can do it." Now Meditech is bringing potential customers, such as Carthage, to Canton-Potsdam, he said.
Canton-Potsdam embarked on the outsourcing venture to "broaden our network and allay some of the $2 million start-up costs," Potter said. The new hospitals pay an initial licensing fee based on their size and size of the system. Canton-Potsdam is the "conduit" to Meditech for the fee. Canton-Potsdam also charges the hospitals a fee for use of its IT facilities, "but they get a big price break by piggybacking on our contract," Potter said.
Indeed, this might be a new frontier for enterprising hospitals looking to outsource other areas besides IT. Three-hospital Summa Health System in Akron, Ohio, in 2002 created Summa Enterprise Group, a for-profit subsidiary, to boost medical education and research efforts for the not-for-profit health system. In its first year in business, Summa launched a home medical equipment business and a workers' compensation claims management business. The medical equipment business has two hospital customers, besides its core customer, Summa Health. Similarly, Summa Health is by far the biggest customer of the workers' compensation business.
"Servicing your mom and dad is easy. It's when you are servicing the neighbors that it gets a little tougher," said Mike Wojno, Summa Enterprise's president and chief operating officer.
Eight-hospital Advocate Health Care, based in suburban Chicago, briefly considered outsourcing Visicu, an electronic intensive-care unit system that allows critical-care specialists to remotely monitor patients. In 2002, Advocate initially invested about $10 million in Visicu and went live with its first hospital in April 2003, said Lee Sacks, Advocate's executive vice president and chief medical officer. Some smaller outlying hospitals asked Advocate if they could purchase the technology through Advocate, he said. The proposals intrigued him because outsourcing could potentially offer some return on Advocate's initial investment and also provide a source for referrals, Sacks said.
"To be honest in the first year, I said I would put their name in a file, but in the last four or five months, I changed my perspective and decided the barriers are so great, they outweigh any positive impact on Advocate," Sacks said. "Having a common e-ICU has forced us to standardize processes and procedures. That wasn't easy, and imposing that on non-
Advocate hospitals wouldn't be easy."
Rural hospitals, on the other hand, tend to see only the positives.
"Up here the more associations we have, the more we can do together," Potter said. "We can't do big things alone, but when we all band together, we can do big things."
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