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Thought Leaders: Software

Is your software bleeding?

Seven fast ways to optimize your contract and reduce spending. By Jeff Muscarella

T cost risk.

The majority of IT and sourcing departments have lim- ited 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 fi rst-time events. On the fl ipside, vendors are exploring new license and fee structures, with some turning up the dial

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

on “creative” contracting tactics that mask hidden fees. As a result, many healthcare organizations fi nd that their initial software investments cost signifi cantly 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, fi nd 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 situ- ations; 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.

32 June 2012

he 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 signifi cant

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 justifi cation. 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. Also, never agree to a minimum purchase clause, specifi cally those in SaaS purchase contracts. 6. Forget fi xed-fee implementations. Fixed-fee implementa- tion fees are rarely fi xed. More often than not, organiza- tions 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. 7. Maximize discount levels. Like pricing and terms, dis- counts 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 ir- refutable 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 organiza- tion. 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.


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