Outsourcing Medical Technology

John D. Cacciamani MD., MBA.Temple University Health SystemConcurrent Session IMarch 7, 2005

What is Outsourcing?Using an independent third party to provide services or infrastructure for a business with the anticipated gain of improved performance and/or reduced costs.

Examples of Potential Outsourcing

Business Process Outsourcing (BPO)Information Technology OutsourcingData Center Management Remote HostingCall Centers

Other Technology “Outsourcing”

Large Software AcquisitionsClinical Information Systems

Radiology Services (Night Hawk’s)Medical Device Management

Market DriversNeed to Improve IT in Health CarePoor Investment Over Past DecadeLimited CapitalImprove Safety (IOM and Leap Frog)

SoftwareHardware

Government Pressure

Potential Advantages of Outsourcing

Improved PerformanceReduced CostsReduced StaffLess OversightEasy access to difficult to acquire expertise

RiskConsequence of total failure?OverchargesLoss of controlUnderperformanceLoss of customer good will

Strategic AdvantageCore Business?Key functions which lead to market advantage

Consumer Driven Health Care InitiativesImproved Clinical Care

Strategic service functions that are dependent on technology

Customer Relationship ManagementPatientsPhysicians

Physicians as CustomersCPOE Adoption IssuesConsequences of Failure

Loss IT investmentLoss of Revenue

Value PropositionCore Competency vs. Extraneous Inefficiencies

QuestionsWhere does the task at had fit into this continuumDo we truly understand value?Time to reevaluate corporate focus, product, and sources of strategic advantage

Needs AnalysisProcess AuditBenchmark Current OperationsValue ExerciseCurrent Deficiency AnalysisExpected Departmental ChangesNeed for Internal Monitoring/Interface after OutsourcingROI

Additional ConsiderationsSWOT AnalysisStake Holder Mapping

MatrixStrategic Non-Strategic

Strategic Competence

Don’t Outsource!

Non-Strategic Competence

Can but Need?New Opportunity?

Competence

Strategic Incompetence

Don’t Outsource!FIX

Non-Strategic Incompetence

Outsource!

Incompetence

Clemmons, Hitt; Jan., 1997

Outsourcing CompaniesHistoryDue DiligenceEconomic ViabilityLegal AnalysisDemo: Operational or Dummy Confidence and Trust

Other OptionsPortfolio Method of Risk Management

Two OutsourcersPartial Internal OverlapDuplication of Services Over Implementation PeriodInsurance?Buy or Partner with the Outsourcer or Control its Key Assets

ContractsLine item expectations are difficult Provisions for changesNeed an expert lawyer teamDamages for losses

TimeServices

Additional gain for value added services

ContractsExit Strategies Defined

Data OwnershipSource Code OwnershipTimeliness Actual methods of dispute defined

Arbitration vs. Litigation

ContractsClearly Defined Payment ScheduleOversight ExpectationsClearly Defined License FeesNegotiate a “Third Party Source Code Escrow Agreement”

Hold up top date CodeDisclosed with failure to perform/bankruptcy

Contracting Pit FallsPoachingShirkingContract Renegotiation

PoachingVendor attempts to extract value without explicit permission

Selling DataTrending data and supplying it to competitorsAnalyzing data and selling it to companies in other markets

Similar Service or ProductsEntirely Different Companies

Actual use of data to take their market

ShirkingNot Performing Tasks Adequately

Actual ServiceUpdating CodeServicing Equipment

Contract RenegotiationOnce Operational Vendor asks for MoreUses Control as Leverage

Down TimeData PossessionCustomer RelationsEtc.

Conclusion

Process Fraught with DangerKnow what you NEEDKnow what you can’t afford to LOOSEThe Contract can Make or Break the DealPortfolio Risk Management is Essential