Outsourcing Experiences in Healthcare Practical lessons learned that apply to all industries

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Outsourcing Experiences in HealthcarePractical
lessons learned that apply to all industries

• October 18, 2006

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Introductions

• Mark Gilliam Vice President, CIO of Ardent
  Health Services, headquartered in Nashville,
  Tennessee. Mark has twenty years of experience in
  the technology and healthcare Industry. He
  joined Ardent in 2002 as the Program Director of
  ERP Solutions, responsible for designing,
  implementing and supporting Lawson across the
  organization. Prior to Ardent, he started The
  Meridian Group which specialized in technology
  consulting and implementation for Healthcare
  providers.
• Jim Jancik President and CEO of ROI Healthcare
  Solutions, a consulting firm that specializes in
  the Project Management of large scale
  initiatives. During a twenty-five year career
  centered around healthcare technology, he has
  held executive management positions in three (3)
  organizations. Jim was a Vice President with
  CapGemini and a Partner with Ernst Young for 15
  years, where he managed a myriad of
  technology-related projects and teams. Prior to
  his consulting career, he held various management
  positions in the healthcare software industry
  with McKesson and in the technology sector with
  IBM.

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Objectives

• Ardent, like other systems in the healthcare
  industry, has experienced both success and
  failure in outsourcing various IT functions over
  the years.
• Today, we will explore Ardents experiences via
  four(4) different case studies.
• In each situation, we will consider the
  following
• The business situation that lead to the
  consideration of outsourcing
• The evaluation process that was used and what
  solution was chosen
• The results of the outsourcing arrangement,
  giving each a rating
• We will conclude with the key lessons learned
  from Ardents experiences
• The outsourcing firms that were considered and/or
  utilized during this five year period (2002-2006)
  included Accenture, First Consulting Group, IBM
  and Perot Systems

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Background
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Ardent Health Services, Inc.

• Ardent is a provider of health care services to
  communities throughout the US.
• Headquartered in Nashville, TN, with major
  operations in Tulsa, Albuquerque, and Baton Rouge
• Established in 1993 as Behavioral Healthcare
  Corporation with six (6) behavioral health
  facilities
• Became Ardent Health Services in 2001
• Currently own and operate 10 hospitals, 1 health
  plan, 1 reference lab, 2 physician groups, 15
  freestanding health clinics in 3 states
• 10,000 Employees
• Privately Owned
• 150 IT Employees located in 3 Centers
  (Corporate/Nashville, Tulsa, Albuquerque)
• Centralized IT Data Center Operations in Nashville

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Business Landscape Timeframe

• Owned two (2) MedSurg Hospitals twenty one (21)
  Behavioral Facilities
• Enterprise Deployment of a major HIS and ERP
  solution
• Technology Standardization
• Acquired St Josephs Health and Lovelace Health
  (ABQ)

• Divested Behavioral Operations
• Developed ITS Strategic Plan
• Broke Ground for New Hospital in Tulsa

• Terminated HIS Standardization
• Merged ITS Operations in Albuquerque
• Acquired Hillcrest Health Systems (Tulsa)

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Case Study 1 0-100 mph in 60 Seconds
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Case Study 1 Business Situation

• Building a new ITS department with both
  implementation and support operations was a
  critical objective in supporting the business
  strategy
• Investment by equity owner was provided to
  initiate the expansion into the Medical Surgical
  industry via acquisition.
• Technology was a key component of this strategy
  with an emphasis on centralization of all key
  technology components across the enterprise.
• The original IT Staff was comprised of five(5)
  resources at Corporate
• A complete ITS Department had to be built from
  the ground up in a very rapid fashion at the same
  time execution of the business strategy was
  underway
• Some of the key design principles included
• Operating processes and procedures would be
  standardized across the organization
• Expansion and acquisitions would occur and
  require rapid integration into the new company
• Technology would serve as an enabler
• Cost should be controlled without sacrificing
  service or putting operations at risk

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Case Study 1 Evaluation and Solution

• Key Drivers
• ITS should mirror business strategy by creating
  standardized processes and procedures
• An IT environment that provided high employee
  satisfaction was to be created with opportunity
  to expand and grow via clearly defined roles and
  responsibilities
• Ownership and accountability was to remain with
  Ardent
• A proven staffing and operating approach that
  could be implemented rapidly was clearly needed
• Solution
• After reviewing multiple options, Ardent selected
  Outsourcer X for a 4 year co-sourced engagement
  for the application support for two enterprise
  systems one HIS and the other ERP
• Implementation services were retained within
  Ardent
• The outsourcer would implement their High
  Performance Training (HPT) framework for IT
  operations covering Service Management,
  Governance, Solution Delivery and Program
  Management
• As new IT personnel were hired, they would be
  trained to use this methodology

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Case Study 1 Results

• Results
• After 3.5 years, 75 of the initially agreed to
  process frameworks have been implemented, with
  the others being jointly cancelled
• Productivity within the core applications teams
  grew at an annual rate of 32
• A true partnership/relationship centered on
  flexibility and transparency was established in
  the contracting phase which allowed for an open
  and honest process for continual feedback and
  improvement
• Clearly defined objectives associated with SLAs
  and productivity were key to avoiding debates on
  success.
• Transparency in metrics and oversight allowed for
  full disclosure
• Flexibility in contract terms allowed for the
  shifting of resources to be aligned with demand
• One area of improvement...better communications
  with Ardent IT employees would have mitigated
  some of the transition process difficulties

Overall success of the engagement has been an A
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Case Study 2 Right Turn
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Case Study 2 Business Situation

• After the acquisition of the hospitals in the
  Albuquerque market, the new Enterprise HIS
  software solution was brought to this market for
  implementation however, after it was determined
  that one core application module was not ready
  for General Availability, a shift in IT planning
  and delivery became necessary
• It was determined that
• All of the hospitals (four in one system and
  one major one in the other) would be run as a
  single
• Albuquerque Division, but
• IT would keep their legacy systems in place
  which required retention of support and IT
  personnel
• Now ITS found itself having to plan for and
  remotely support
• Two (2) different releases of IDX application
  software
• Three (3) separate Data Centers
• Two (2) distinct IT Staffs
• The two (2) IT staffs resulting from the
  acquisitions were creating confusion and
  inefficiencies in the business community there
  was
• Lack of accountability and ownership
• Disparate operating practices
• Ineffective management
• Lack of knowledge regarding the newly inherited
  systems

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Case Study 2 Evaluation and Solution

• Key Drivers
• Business critical applications and technologies
  were at risk and failing, so decisions had to be
  quick and risks had to be managed
• The majority of the existing IT staff had been
  presented with retention plans that were expiring
  
• Knowledge and familiarity with the installed
  software hardware technologies were important
• Solution
• Ardent realized it needed to act quickly to get a
  viable solution in place.
• After considering its options, Ardent selected
  Outsourcer Y for a 2 year full outsource of
  Application Support and Data Center Management in
  Albuquerque
• However, it was decided that Desktop Support,
  Technology and Infrastructure would remain with
  Ardent

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Case Study 2 Results

• Results
• With the new outsourcer in place, a key business
  application running one of the hospitals that had
  been failing, was upgraded to a new server with
  success
• Both application groups were united under one
  roof and one management team
• Depth of knowledge related to key application
  solutions was strengthened by complementing the
  legacy staff with new personnel from the
  outsourcer
• Pace of negotiations was rushed without solid
  definitions of objectives, needs and SLAs.
• Contract was negotiated in a silo with little
  participation by existing IT teams this created
  an environment of mistrust
• The Outsourcer focused on executing their
  processes and had little interest in following
  Ardent processes this had not been spelled out
  clearly in the contract
• A void in IT leadership coordination over the
  overall Albuquerque Division created issues
  between outsourced non-outsourced functions
  that resulted in finger pointing and further
  division.

Over time, the results of this engagement would
only rate a C
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Case Study 3 Inherited IT
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Case Study 3 Business Situation

• In 2004, Ardent acquired the Hillcrest Health
  System (HHS) in Tulsa, Oklahoma, which was a
  seven(7) hospital system.
• Upon initial assessment of the situation, what we
  found was
• HHS had outsourced the entire IT operations to
  Outsourcer Z 3 years prior in addition, the
  outsourcer was engaged on a 10-year full
  outsource arrangement
• All former hospital IT staff members had
  transitioned to the Outsourcer with the former
  CIO becoming acting Outsourcer CIO.
• HHS had been under financial stress and
  outsourcing IT provided cash infusions structured
  as loans and off-balance sheet working capital
• HHS had a strong, experienced team that was
  providing overall good support to their market
  and the outsourcer had supplemented that team
  with new management personnel
• However, the IT department was lacking formal
  processes and structure and the overall level of
  customer satisfaction was mixed

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Case Study 3 Evaluation and Solution

• Key Drivers
• Upon further evaluation after the acquisition,
  Ardent found that
• The contract was primarily aligned around service
  levels as they existed at signing (i.e. to
  maintain the status quo) annual true-up had
  never occurred so the basis of the contract was
  outdated and did not provide for changes, new
  investments, and growth
• Discretionary project usage was vague and
  undefined combined with outdated SLAs, most
  discretionary project time was being consumed by
  maintenance support
• Measurements were unclear and lacked reporting
  with full transparency
• Penalty and out clauses were heavily weighted to
  the outsourcer and there was limited ability to
  transition out of the ten (10) year contract
  without incurring significant penalties
• The business organization did not believe that
  the current cost to value received was balanced
• Again, we faced disparate operating processes
  with our own organization and had to determine
  how to bring alignment into all of ITS
• Solution
• Met with Outsourcer Z to modify the contract
  deliverables to better support Ardents plans
• Complemented on-site staffing with corporate
  staffing (eg. help desk)

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Case Study 3 Results

• Results
• Negotiations in the contract provided for some
  new service arrangements and a little better cost
  to value ratio
• More formality and operating structure was
  implemented that enhanced the ITS service levels
  and offerings overall
• However, coordinating client service between
  Corporate and the local market was difficult and
  required a lot of travel to work-out client
  service issues
• Relationships with the staff in the Tulsa market
  were never solidified, and there was always a
  little we vs they mentality
• There was, however, only limited things that
  could be done with the existing contract, and so
  once the changes were implemented, it became
  business as usual

The overall results of this inherited arrangement
would be rated a B
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Case Study 4Re-evaluating IT Overall
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Case Study 4 Business Situation

• As the year 2005 began, the landscape of Ardent
  and IT was clearly in a state of unrest and the
  future direction was unclear
• The decision to terminate the contract
  relationship with the Enterprise HIS vendor had
  been made and a new solution was being considered
• The business was in a pause mode trying to digest
  and focus on the acquisitions over the previous
  two years
• The Behavioral Hospitals were divested with the
  company defining a new core business strategy
  centered on medical surgical hospitals.
• IT had lost the confidence of Executive
  Management because of the failed Enterprise HIS
  implementation and the inability to provide
  predictable services and cost
• The previous CIO was released and the VP of
  Applications (MG) assumed the role
• A large infrastructure (i.e. 100 plus people) had
  been developed to support a centralized model
  that had not materialized

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Case Study 4 Evaluation and Solution

• Key Drivers
• Because of the build-up, IT cost were high,
  personnel were not being well managed and
  predictability was out the door
• Morale within the department was suffering due to
  the change in direction and the failed HIS
  project
• Multiple(3) outsource vendor arrangements were in
  place and Ardent employed IT personnel had many
  questions regarding the future
• Solution
• A thorough evaluation had to be done to break
  down and understand the objectives and results of
  outsourcing and answer the question, Should we
  outsource all of IT and if so, with Whom, and
  How?
• A study on in-sourcing vs outsourcing with an
  apples to apples comparison had to be done that
  considered service-levels, dollars, and most
  importantly, alignment with the companys future
  strategic direction.
• The study was accomplished with both in-house and
  consulting resources and considered most of the
  major outsourcing firms in healthcare
• The goal was to have one master for all of the
  employees to execute our strategy the existing
  contracts did not provide for that to be attained

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Case Study 4 Results

• Results
• A thorough cost inventory was prepared that
  showed that Ardent Corporate was actually
  performing better than had been understood
  effective communication and awareness between
  ITS and executive management had been lacking
• After the results of the evaluation were
  discussed, the decision was made that Ardent
  would not outsource the ITS function, but rather
  transition all IT functions back in-house
• The recommendation was that Outsourcer X and Y
  contracts would be at end-of life within 12
  months so a plan was put in place to allow
  transition to align with end of contract.
• With Outsourcer Z, negotiations began that
  resulted in executing an early-out option
  within a six (6) month period.
• Opportunities to reduce and right-size the
  organization were identified and executed, which
  resulted in Ardent recognizing significant
  savings.
• A Strategic IT Plan was developed to act as a
  Roadmap for the future
• Financial benefit (approximately 2M) was
  recognized in the first year with limited service
  disruption
• Confidence in IT was re-established within the
  Executive Management Suite

To date, results of this decision would be rated
an A
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Key Lessons Learned
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Key Lessons Learned

• Clearly define the objectives for outsourcing
  before proceeding the objectives defined by
  Ardents Sr. Management (i.e. cost reduction)
  could not be accomplished with an outsourced
  solution
• Make sure that the evaluations and proposals are
  on your terms provide a consistent process and
  template to all potential vendors so you have
  consistency in the proposals have decision
  criteria documented understood
• Must get clear agreement in the contract on a
  mutual operating structure and clearly defined
  expectations regarding how things get done
  SLAs have to be clear and measurable
• Build in as much flexibility for changes into
  the contract as possible establish and conduct
  regular review meetings with Executive Teams of
  both parties to review progress and make
  appropriate adjustments.
• Define and clearly understand transition plans
  and personnel restrictions both coming in and
  going out having mutually agreed upon terms
  conditions in the contract the speak to this
  issue.
• Either outsource all functions or make sure a
  decision maker/leader is put in place to manage
  both outsourced and non-outsourced functions for
  a given project .
• Cannot outsource strategy and management of your
  organization
• Communicate with the your teams/personnel at all
  times significant disruption in services due to
  anxiety and job retention can be avoided if this
  occurs