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 Thought Leaders

Is your software bleeding?

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   By Jeff Muscarella, June 2012

Jeff MuscarellaSeven fast ways to optimize your contract and reduce spending.

The healthcare enterprise is investing more in software than ever before. This bodes well for the evolution of healthcare as a business and for quality of care – but it’s not without significant cost risk.

The majority of IT and sourcing departments have limited experience purchasing a cloud-based EMR system, big data storage solution or mobile computing platform. The technology landscape is changing at an unprecedented pace and, for many, these purchases are first-time events. On the flipside, vendors are exploring new license and fee structures, with some turning up the dial on “creative” contracting tactics that mask hidden fees. As a result, many healthcare organizations find that their initial software investments cost significantly more than they were prepared to spend.

Here are seven ways healthcare organizations can stop software cost-bleeding and eliminate the risk of overspending for their future IT investments:

  1. Understand what constitutes “fair” pricing and terms. Your vendor may be charging you 30 percent more than the last customer – but how can you tell? With so many new and immature offerings, vendor pricing and terms are all over the map. New “cloud” versions of usage-based fees (e.g., SaaS, per claim, per visit, etc.) require careful negotiation. If you aren’t familiar with these complexities, find someone who can benchmark your purchases to ensure pricing and terms are in line with current market conditions.
  2. Beware of the bundle. Bundled software and services are an excellent way to pay for more than you actually need. That’s not to say they’re not appropriate in certain situations; it just takes a careful analysis of a-la-carte pricing and your unique IT requirements to make sure it makes sense for you. The same goes for solution over-engineering, especially for data management and business intelligence solutions. Keep in mind that regardless of whether you actually use all of those bells and whistles, you will be paying for them.
  3. Explore third-party support alternatives. Many companies pay for premium support when they could get by with a more basic level of service in certain areas of their IT portfolio – or, better yet, get the same level of service with a third-party support provider at 30-50 percent less cost. Third-party providers include hybrid options that work directly with the vendor to deliver service, as well as those that work independent of the vendor’s program.
  4. Refuse “usual” annual maintenance increases. Annual support rate increases have gotten out of control, but most healthcare IT pros think they’re unavoidable. That’s not the case. These rate increases are usually arbitrary with little justification. Be sure to ask your vendor to justify their rate increase, and negotiate accordingly.
  5. Understand alternative licensing options. Do you really need an enterprise agreement (EA)? Have you researched your vendor’s newest license options? For many IT pros, the answer is no. This is a major (and costly) misstep. Explore all license alternatives.
  6. Also, never agree to a minimum purchase clause, specifically those in SaaS purchase contracts.
  7. Forget fixed-fee implementations. Fixed-fee implementation fees are rarely fixed. More often than not, organizations pay additional fees outside of this cost proposal to see their IT investment through the implementation phase. Ask your vendor to bid implementation costs on a time and materials basis to understand true cost to serve.
  8. Maximize discount levels. Like pricing and terms, discounts for software are all over the map. You may receive a 20 percent discount based on the number of licenses you purchase, while the next healthcare organization receives a 60 percent discount for the same purchase. Be aggressive in your discount negotiations. Come to the table with irrefutable evidence of fair market discount levels.  

The climate may be ripe for overspending, but these are some simple steps you can take to protect your organization. Armed with the right pricing and contracting insight, healthcare IT professionals can navigate the complexities of today’s IT purchasing environment and eliminate the risk of overspending.

About the author

Jeff Muscarella is EVP of IT, NPI Financial. For more on NPI Financial, click here.


Tags:  Thought Leaders