CRITERION HEALTH STRATEGIES INC. HEALTH CARE INFORMATION CONSULTANTS LLC Outsourcing – What, Why, When, and Who HealthTechNet December 14, 2001 James L. Oakes, Jr. CEO, Criterion Health Strategies

CRITERION HEALTH STRATEGIES INC. HEALTH CARE INFORMATION CONSULTANTS LLC “Technology is just a matter of using the right wrench to pound in the correct screw”

CRITERION HEALTH STRATEGIES INC. HEALTH CARE INFORMATION CONSULTANTS LLC Agenda Overview of Prevalent Models Key Decision Drivers Evaluation Criteria Major Players (incomplete)

CRITERION HEALTH STRATEGIES INC. HEALTH CARE INFORMATION CONSULTANTS LLC Why was the casualty rate so high in the civil war?

CRITERION HEALTH STRATEGIES INC. HEALTH CARE INFORMATION CONSULTANTS LLC “The Press Can’t Tell You What to Think, but They Can Tell You What to Think About…” John Naisbitt

CRITERION HEALTH STRATEGIES INC. HEALTH CARE INFORMATION CONSULTANTS LLC Least Favorite Messages from Your CEO….. “One of our Board Members called and wants you to interview his nephew for a job….” “A news crew from “60 Minutes is in the lobby and wants to talk with you about data security” “I’ve engaged XXX Consultants to help us evaluate outsourcing options”

CRITERION HEALTH STRATEGIES INC. HEALTH CARE INFORMATION CONSULTANTS LLC Reasons Not to Consider Outsourcing We can do it as well as an outside firm can We have a loyal staff who have been with us for years Its expensive We’ll lose control of a key asset All our best people will quit Yadayadayada

CRITERION HEALTH STRATEGIES INC. HEALTH CARE INFORMATION CONSULTANTS LLC Reasons to Consider Outsourcing Access to key skills Greater control over cost escalation Accountability Lower risk factors during a key implementation or conversion Access to capital Put discipline in the internal organization

CRITERION HEALTH STRATEGIES INC. HEALTH CARE INFORMATION CONSULTANTS LLC Some Provocative Statements Outsourcing can provide key skills that are in short supply There are many different outsourcing models Outsourcing can be a win for all involved players

CRITERION HEALTH STRATEGIES INC. HEALTH CARE INFORMATION CONSULTANTS LLC A Sampling of Models Expert Sourcing ASP Services Back Room Operations Technical/Network Services Facilities Management Full Outsourcing

CRITERION HEALTH STRATEGIES INC. HEALTH CARE INFORMATION CONSULTANTS LLC Organization Strategy Why Outsource? –Skill Shortages (37% positions remain unfilled) –Low IT Wages (Lowest of 9 industries surveyed by META) –Limited Ability to Invest in IT –Continued IT Expectation Shortfall –Need to Transition to New Technologies/Align With Business Strategy META Trend: During 2000 – 2003, IT outsourcing will grow 30% with large HIS vendors garnering the majority of the business. Networking, systems integration, business process engineering and C/S migration will lead IT outsourcing growth

CRITERION HEALTH STRATEGIES INC. HEALTH CARE INFORMATION CONSULTANTS LLC Key Players Traditional Outsourcing Offerings

CRITERION HEALTH STRATEGIES INC. HEALTH CARE INFORMATION CONSULTANTS LLC New Outsourcing Models New Models to Consider –Co-Sourcing Example: Vendor moves Data Center, Provider keeps Applications/Systems Analysts –Component Sourcing Example: Vendor manages DeskTops and/or Network Infrastructure –Business Process Outsourcing Example: Key processes such as AR or Medical Records Management includes people, process and technology outsourcing –Provider Partnerships Example: Partner Health System manages staff/resources for Provider

CRITERION HEALTH STRATEGIES INC. HEALTH CARE INFORMATION CONSULTANTS LLC Value Matrix Component Outsourcing Benefits F F u u n n c c t t i i o o n n O O u u t t s s o o u u r r c c e e d d P P o o t t e e n n t t i i a a l l t t o o R R e e d d u u c c e e C C o o s s t t s s P P o o t t e e n n t t i i a a l l t t o o A A d d d d V V a a l l u u e e R R i i s s k k BH S A A s s s s e e s s s s m m e e n n t t M M a a i i n n f f r r a a m m e e P P r r o o c c e e s s s s i i n n g g O O n n l l y y L L t t o o M M M M L L L L D D a a t t a a C C e e n n t t e e r r a a n n d d T T e e c c h h n n i i c c a a l l S S u u p p p p o o r r t t M M M M L L L L t t o o M M A A p p p p l l i i c c a a t t i i o o n n s s D D e e v v e e l l o o p p m m e e n n t t L L H H M M M M P P a a c c k k a a g g e e S S e e l l e e c c t t i i o o n n a a n n d d I I m m p p l l e e m m e e n n t t a a t t i i o o n n L L M M t t o o H H M M t t o o H H M M A A p p p p l l i i c c a a t t i i o o n n M M a a i i n n t t e e n n a a n n c c e e H H M M L L M M P P C C I I n n f f r r a a s s t t r r u u c c t t u u r r e e H H M M L L H H E E n n d d U U s s e e r r S S u u p p p p o o r r t t H H H H L L H H D D i i s s a a s s t t e e r r R R e e c c o o v v e e r r y y H H H H L L H H P P l l a a n n n n i i n n g g & & A A r r c c h h i i t t e e c c t t u u r r e e L L H H H H M M t t o o H H W W e e b b D D e e s s i i g g n n M M H H M M H H R R e e s s e e a a r r c c h h & & D D e e v v e e l l o o p p m m e e n n t t M M H H H H H H

CRITERION HEALTH STRATEGIES INC. HEALTH CARE INFORMATION CONSULTANTS LLC IT Strategy Alignment Necessary Evil Cost of Doing Business Increased Efficiency Increased Effectiveness Competitive Advantage Today Short Term Future

CRITERION HEALTH STRATEGIES INC. HEALTH CARE INFORMATION CONSULTANTS LLC Autopsy Results Reasons for Outsourcing Failures –Inadequate time for evaluation – average six to nine months –Imprecise scope – lack of clarity will work in favor of the vendor –Choosing the wrong vendor – Technology migration plans, business strategies, culture, management teams, etc. must be considered –Ignoring issues related to managing the outsourcing arrangement – Oversight must be given to the relationship to include service levels, price adjustments, equipment inventory, etc.

CRITERION HEALTH STRATEGIES INC. HEALTH CARE INFORMATION CONSULTANTS LLC Autopsy Results Reasons for Failures –Insufficient protection in the contract – Contracts are complex. Must be explicit in price adjustment methodologies, service level agreements, vendors ability to subcontract, liability caps, etc. –Ignoring issues related to managing the outsourcing arrangement – Oversight must be given to the relationship to include service levels, price adjustments, equipment inventory, etc.

CRITERION HEALTH STRATEGIES INC. HEALTH CARE INFORMATION CONSULTANTS LLC How to Get Started Start where you are Understand baseline costs Understand baseline performance levels Understand your objectives Evaluate partners with and open mind – and with open eyes!

CRITERION HEALTH STRATEGIES INC. HEALTH CARE INFORMATION CONSULTANTS LLC Closing Thoughts “Trust, but Verify” Ronald Reagan

CRITERION HEALTH STRATEGIES INC. HEALTH CARE INFORMATION CONSULTANTS LLC Or As Another Great American Said, “Trust everyone, but cut the cards…” W.C. Fields