There’s no shortage of trials facing healthcare IT leaders in the current environment — particularly when it comes to managing costs.
“The financial climate couldn’t be more challenging,” said Brian Sterud, CIO, Faith Regional Health Services. “Overall expenses have gone up. When you combine that with lowered reimbursement, it’s a really tough equation to solve.”
As leaders, especially those from small and rural organizations, strive to reduce IT costs without compromising service, it’s becoming increasingly clear that traditional strategies aren’t going to cut it. And neither will ‘quick fix’ solutions like downsizing.
“Rather than get rid of certain services, we want to dig down and really look at overall IT operations and focus on cutting systemic waste,” said James Wellman, CIO at Nathan Littauer Hospital and Nursing Home. “We want to make investments that can improve the way we run operations.”
During a recent panel discussion, Sterud and Wellman spoke with Lindsey Jarrell, CEO at Healthlink Advisors, about how their teams are approaching these hurdles and shared best practices that can be applied across different settings.
Reviewing contracts
An ideal starting point, according to the panelists, is reviewing contracts — a task that may seem obvious but is often overlooked. “It’s amazing some of the things you can get rid of when you look at the fine print,” said Wellman. “It still surprises me when I see redundant contracts or contracts where we’re paying for products we’ve sunsetted over a year ago.”
One of the most common missteps is failing to cancel the contract for an existing solution after implementing a new purchase, which can lead to a year of doubled fees. And while it certainly isn’t done intentionally, it can still wreak havoc on IT’s financials, he noted. “It’s a busy world. There are pressures and noise coming in from everywhere, and things can slip through the cracks if you don’t have a good tracking process or project structure.”
The Internal CFO
This is where having an ‘internal CFO’ can pay dividends, according to Jarrell, who spent some time on the provider side earlier in his career. By tapping a manager, director, or IT analyst to oversee contracts, CIOs can become more aware of costs being incurred and avoid unpleasant surprises.
One example? The emergency contracts signed during Covid-19 that are now coming up for renewal — some of which have very specific language around termination policies (and subsequent costs). “I can’t stress enough how important it is to have someone who knows everything that’s happening at a detailed level,” and is aware of all vendor payments, he said. In fact, Jarrell’s team recently uncovered significant savings for a client that was paying aftermarket hardware maintenance for a product that hadn’t been used in years.
“These things happen; people are busy, and they don’t see invoices at the line-item level,” he added. “That’s why you need that czar inside of IT who knows these things cold. Even if supply chain is responsible for contracts, this allows you to double check, because vendors are happy to take those auto renewals after initial term. And those auto renewals often come with a substantial price increase.”
Although there’s no room to negotiate with price increases after the ink has been signed, there are opportunities to get out in front of it, according to Wellman, who advised fellow leaders to look carefully at contractually stipulated price increases. “This is a great time to have honest conversations with vendors and say, ‘let’s put in something reasonable that we can both afford,” he said. For an organization like Nathan Littauer, that doesn’t include 7 percent spikes. But by having the conversation prior to an agreement, CIOs can work out “a more favorable contract.”
Bundling concerns
Another potential landmine for leaders, according to Sterud, is bundling, which can be tempting when making large purchases. “It seems like a great idea, but you lose that value if you don’t get everything implemented right away,” which is often the case with resource-strapped organizations.
What makes more sense, he has found, is leveraging a phased approach, and ensuring that costs aren’t incurred until you start using those solutions or services.
Jarrell agreed, noting that this is where transparency becomes critical. “When you get into a situation where you’re bundling with a software vendor, the line-item detail can disappear because they’ve put in a master discount at the top level,” he said. And while it’s not always possible to view line-item pricing with bundled deals, CIOs can exercise their influence during the renewal discussions by saying, for instance, “‘If I don’t want to buy all seven pieces again, how much will you take off if I remove these pieces,’” he said. That way, “even if you don’t get the price you want today, at least you know what you get with cancellations.”
Exit plans
Finally, no contract is complete without a thorough exit clause, according to Sterud. “I’ve been around long enough to know that out-clauses are important,” he said. Creating one, however, requires a lot of back and forth with vendors, who may downplay their necessity by saying, ‘we’re providing a great product. Why are we talking about an out-clause?’”
The reason is simple: to protect against auto-renewals and hidden costs, said Sterud, who advised attendees to stick to their guns if they receive pushback. After all, “if you’re so confident you’re going to provide me a great service, then it shouldn’t matter,” he pointed out.
‘Frenemies’
While contract management is certainly a critical component in more effectively managing IT costs while providing the same level of service, there are other avenues leaders can explore. One of those, according to Jarrell, is working with ‘frenemies.’
Whereas in the past, independent facilities wouldn’t dream of teaming up with similar organizations to combine resources, today some are embracing the opportunity, he said. Particularly those that share the same EHR and revenue cycle systems and, as such, can share application support or analytics teams. “We’ve started to see this happening more.”
One organization that’s taking advantage is Nathan Littauer, said Wellman. “We’re having conversations with what I would call our ‘frenemies’ — those that historically we might have competed against,” and entering into joint ventures. Not only is it beneficial, but in areas that struggle to recruit and retain talent, “it’s becoming a matter of survival.”
Of course, it requires a great deal of work with administration to ensure trade secrets “aren’t flowing back and forth,” Wellman noted, but overall, the pros seem to outweigh the cons.
For those looking to enter nontraditional partnerships, it’s important to set realistic goals and think long-term, noted Jarrell, whose team is currently working on engagements between facilities. “As we look at the financial forecast in terms of where the savings come from, it’s about the future,” he said. His advice? “Take a long view of this. Look three years out and incrementally work upstream.”
For community hospitals in particular, the opportunity to go to market for something like a new service desk armed with more resources can yield significant benefits in the long-term, according to Wellman. “At the end of the day, we’re here to provide a service. We’re part of healthcare. That’s the ultimate goal in what we’re doing. And we’re not going to do any good with throat-cutting competition against someone who is suffering the same woes as we are.”
And although he believes it will require a “cultural shift,” as well as a level of transparency that healthcare leaders have been hesitant to provide, sharing resources is a step in the right direction.
“It’s a fantastic opportunity,” he said.
To view the archive of this webinar — Strategies for Reducing IT Costs Without Compromising Service (Sponsored by Healthlink Advisors) — please click here.
Share Your Thoughts
You must be logged in to post a comment.