Outsourcing on a Grand Scale

Administrators, physicians and systems integrators play by different rules.

By Bob Smith, vice president of out-sourcing services for FCG Management Services, First Consulting Group, in New York.

Louis F. Reuter IV, executive vice president of administration at NewYork-Presbyterian Hospital (NYPH), didn’t need a ‘Top 10 List’ to tell others why outsourcing made sense for one of the largest healthcare institutions in the world. “We needed to change the IT commerce system. Outsourcing offered the most dramatic result,” he says.

Last November, NYPH announced a seven-year, $228 million IT outsourcing contract with First Consulting Group (FCG), making it one of the jumbo IT outsource contract awards in the industry. The contract is so large that it created a third entity, FCG Management Services, to perform the work—and that step included the hiring of more than 400 NYPH staff into the new unit.

Want a definition of jumbo? Try this one. NewYork-Presbyterian Hospital represents a consortium of 16-sponsored and 15-affiliate hospitals. It includes eight long-term care facilities, 97 ambulatory care centers, four specialty institutes, 12 physician groups and four managed care entities. Want more? How about these 1999 operational metrics: $4.3 billion in operating revenue, 10,182 licensed beds, 12,000 physicians, 419,872 discharges, 2,062,172 outpatient visits, 1,007,590 emergency room visits and 149,237 ambulatory surgery procedures that serve more than 20 percent of the New York metro area population.

Reuter knows all about size—he’s the architect of the outsourcing arrangement. Regardless of size, he says, “We must remain agile and be open to change.” Seven months into the agreement and he’s ramping up expectations. Welcome to the new era of super-size IT outsourcing.

Seriously Seeking Results

Why did NYPH outsource? In a word, change. NYPH wanted immediate benefits from the predictable costs, service levels and outcomes offered by outsourcing. They also sought a risk-and-reward incentive arrangement for IT operations improvement programs. Finally, they sought to stem the attrition exacerbated by Wall Street’s insatiable appetite for systems expertise. 

“As a nonprofit health institution, we found it difficult to leverage the knowledge and skill of a systems integrator” Reuter says. “With outsourcing, you change the IT commerce system. When you change what’s important, you get results.”

The benefits of IT outsourcing are being rewritten by the latest round of healthcare arrangements, and the new mix of relationship, skill and contract combinations are driving different results. NYPH is not alone in seeking results through change. It joins other super-size institutions such as Detroit Medical Center (10-year, $1 billion agreement with Compuware) and Saint Joseph’s Health System (10-year, $270 million agreement with Perot Systems) in similar moves. It’s too early to evaluate the merits and risks of these blockbuster deals, but CEOs and CIOs have reason to pause and evaluate the early results.

In the interim, Reuter shares words of wisdom for mega-institutions considering this type of transition. “Do what you do best—improve patient care. Outsource the rest.”

Working in New Ways

“The biggest issue a CIO faces after signing the contract is managing the performance objectives for the first six months,” says Diane Daniele, Interim CIO for NYPH, (aligne Inc., a Safeguard Scientific Company). “Transition to a new IT business model takes time and carries a steep learning curve to get it right. Naturally, NYPH and the outsourcer want to inspire change rather than compel it. But there’s a short window and an expectation of change, so you must be aggressive about the delivery demands.” 

NYPH’s office of the chief information officer (OCIO) designed a governance model to make IT a more effective investment tool by focusing on strategic planning and thinking, monitoring, governing partnerships and change management. The Office of the CIO is a champion of IT change at NYPH. 

“It may have slowed some of the IT decision-making, but we have a much clearer view of the business impact and return on investment,” Daniele says.

Integration was another key point in the agreement. Reuter promoted integration and hot-started the change process by putting in place a transition management team of applications, finance, human resource and systems experts nearly two months before the contract was signed. 

“You must show people what the future looks like and restructure the business simultaneously,” says Guy Scalzi, NYPH’s former CIO and now the account manager for the New York outsource team. 

The most important factor about change is the speed with which it must occur, Scalzi says. Reflecting on the first six months, Scalzi noted that “23 of 24 senior staff have new responsibilities, report to a different person or are new employees.” 

Playing by Different Rules

The trench work of transition and change management continues each day at NYPH with core process improvement teams focused on everything from leadership training to wiring closet inspections. Sharing leadership roles with the OCIO speeds up integration. The outcome is, “We’re getting faster at it,” says Sandy Steinmitz, director of data center operations. And better, too.

The OCIO and data center operations teams are in the middle of analyzing every hardware and software contract, asset lease agreement and operations procedure. Supported by an incentive plan that shares operational savings equally, the new environment inspires idea generation and action-oriented behavior. Putting a business relationship between the outsourcer and the hospital drives more discipline about IT investments, a commerce system that wasn’t possible as an internal IT department. 

Change in how people communicate is another early benefit. “We found ourselves saying ‘Go ask Bob’ whenever an operations emergency surfaced. Keystone knowledge ended up in the heads of a few managers,” Scalzi says. So he put some high potential managers into the applications areas and told them to break down the runtime performance barriers and open up the client communication channels.

The applications process team and end-user managers looked at best practices. They embraced the new rules with some reluctance, but immediately saw an improvement in response time, throughput and month-end reporting. 

“It’s changing relationships with our customers,” notes Daniele. “And now we are jointly raising the bar with negotiated service level agreements.”

The outsourcing culture rewards leaders who collaborate and communicate, and does not reward the information blockers. The benefit of having a company with intellectual capital, techniques, and experience behind the IT organization is a better environment for learning, sharing and rewarding, Daniele says.

Although they were initially skeptical about the outsourcing agreement’s impact on service and loss of control, physicians, too, have experienced early positive changes from the contract. The message is clear, Daniele says, that NYPH physicians will have an active role in the use of emerging technologies and an active voice in determining any impact on clinical decision-making tools and care delivery. 

“They have enthusiastically led the development of key service metrics for the help desk, clinical applications and clinical data repositories,” she says. 

So Far, So Good

Technology partnerships built on a foundation of shared trust and understanding, and supported by the principles of an IT commerce system, are gaining momentum. Like any IT strategy, the decision to outsource should be preceded by analysis. Experts tend to be skeptical about the short-term achievements and the long-term viability of total outsourcing arrangements. Some key points to consider in assessing the merits of outsourcing include:

• Understand what’s driving the move to outsource. Is there a compelling reason to change?
• What other options can be considered? What are the obstacles?
• How will outsourcing affect the organization’s control and management of information?
• What competitive or organizational benefits do you obtain from owning the IT production?
• How important is cost? Can you turn your fixed costs into variable costs?
• What are the requirements of the outsourcer to hire the existing staff?
• What are the current and future technology capabilities?
• What are the realistic opportunities for a business alliance with the outsourcer?

Judging by the recent storm of activity and interest in the industry, outsourcing IT is an idea whose time has come in healthcare. Failure to recognize it as a viable option may limit your organization’s ability to keep pace with change.

July 2000