Outsourcing Medical Technology John D. Cacciamani MD., MBA. Temple University Health System Concurrent Session I March 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 Outsourcing Data Center Management Remote Hosting Call Centers

Other Technology “Outsourcing” Large Software Acquisitions Clinical Information Systems Radiology Services (Night Hawk’s) Medical Device Management

Market Drivers Need to Improve IT in Health Care Poor Investment Over Past Decade Limited Capital Improve Safety (IOM and Leap Frog) Software Hardware Government Pressure

Potential Advantages of Outsourcing Improved Performance Reduced Costs Reduced Staff Less Oversight Easy access to difficult to acquire expertise

Risk Consequence of total failure? Overcharges Loss of control Underperformance Loss of customer good will

Strategic Advantage Core Business? Key functions which lead to market advantage Consumer Driven Health Care Initiatives Improved Clinical Care Strategic service functions that are dependent on technology Customer Relationship Management Patients Physicians

Physicians as Customers CPOE Adoption Issues Consequences of Failure Loss IT investment Loss of Revenue

Value Proposition Core Competency vs. Extraneous Inefficiencies Questions Where does the task at had fit into this continuum Do we truly understand value? Time to reevaluate corporate focus, product, and sources of strategic advantage

Needs Analysis Process Audit Benchmark Current Operations Value Exercise Current Deficiency Analysis Expected Departmental Changes Need for Internal Monitoring/Interface after Outsourcing ROI

Additional Considerations SWOT Analysis Stake Holder Mapping

Matrix StrategicNon-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 Companies History Due Diligence Economic Viability Legal Analysis Demo: Operational or Dummy Confidence and Trust

Other Options Portfolio Method of Risk Management Two Outsourcers Partial Internal Overlap Duplication of Services Over Implementation Period Insurance? Buy or Partner with the Outsourcer or Control its Key Assets

Contracts Line item expectations are difficult Provisions for changes Need an expert lawyer team Damages for losses Time Services Additional gain for value added services

Contracts Exit Strategies Defined Data Ownership Source Code Ownership Timeliness Actual methods of dispute defined Arbitration vs. Litigation

Contracts Clearly Defined Payment Schedule Oversight Expectations Clearly Defined License Fees Negotiate a “Third Party Source Code Escrow Agreement” Hold up top date Code Disclosed with failure to perform/bankruptcy

Contracting Pit Falls Poaching Shirking Contract Renegotiation

Poaching Vendor attempts to extract value without explicit permission Selling Data Trending data and supplying it to competitors Analyzing data and selling it to companies in other markets Similar Service or Products Entirely Different Companies Actual use of data to take their market

Shirking Not Performing Tasks Adequately Actual Service Updating Code Servicing Equipment

Contract Renegotiation Once Operational Vendor asks for More Uses Control as Leverage Down Time Data Possession Customer Relations Etc.

Conclusion Process Fraught with Danger Know what you NEED Know what you can’t afford to LOOSE The Contract can Make or Break the Deal Portfolio Risk Management is Essential