“H.I.S.

-tory” by Vince Ciotti
Episode # 36:

Consultants, Part 4:

Outsourcing

© 2011 H.I.S. Professionals, LLC

The Next Big Thing
• Remember back to when Sheldon Dorenfest formed Compucare, with the same idea as a 1970’s consulting firm named Medicus: – Facilities Management – or FM as it was known in the ‘60s • In essence, managing a hospitals DP shop by professionals who could get the job done better and faster than mere hospitals… – (Even though the same DP people worked for both…) • IN 1989, IBM shocked the IT world announcing it was both building and managing a brand new data center for Eastman Kodak (get the picture?) They called it: • OUTSOURCING – a much more modern concept… • Why, there are so many ways that modern outsourcing is so far superior (pun intended) to oldfashioned “FM,” that the entire next slide is devoted to covering the intricate and subtle differences:

Differences between FM and Outsourcing

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How Did Outsourcing Spur Growth?
• Check this math out for yourself: – Our tiny little “HIS Pros” consulting firm has 6 FTEs and does about a million a year in annual revenue – pretty puny, huh? – Who would ever buy us, or how could we ever go public?? • Let’s say we outsource the IT shop at one of our client hospitals, a community hospital of 250 beds with an IT staff of 20 FTEs. – The average IT person makes, say, $75K per year, including benefits, so say their IT salary budget is around $1.5M/year. • We assign one of our people to be the “Account Executive,” and take their entire staff onto our payroll, plus a profit of 20% for about $1.8M/yr • We are now almost 3X as big as we were, and that’s only one deal! Plus, the many add-on gigs they’ll need us for: planning, audits, MU, etc. • 2 or 3 of those deals and we’re $10M or more!!

Growth of HIT Outsourcing
• So outsourcing can balloon a “consulting” firm’s revenue enormously, which is just what Superior, FCG, ACS, Perot, et al, started to do as outsourcing gained popularity in the 1990’s. • Not only “consulting” firms jumped into this enormous revenue gravy train, but HIS vendors and auditors firms jumped in as well. • I can still remember arguing with a Siemens rep that their “RCO” was not outsourcing, and her vehemently going through the logic that it was, since the data center (and all those operators) were now theirs! • But no matter what was outsourced - the data center, the CIO, or the whole shop – the entrée was superb. • Once a good “account executive” got their foot in the door, there was no limit to what they would find in terms of other consulting opportunities: strategic plans, system selections, implementation assistance – and all from the hospital’s new “partner” – no bids!

Many Outsourcing Hats
• Superior grew phenomenally during the 1990s and 2000’s, eventually being bought by ACS in 2004 for $8.50/share or $95M! – Affiliated Computer Services - had actually started outsourcing in many other industries before acquiring Superior: • Communications, Finance, • Higher Education, Insurance, • Manufacturing, Retail, Shipping, • Logistics, Travel Services, • Transportation, etc. » I first ran across them at UHHS in Cleveland, where Ed Marx had done a super job of managing their outsourcing to strict SLAs (Service Level Agreements) » After buying Superior, ACS’ acquisition act got copied by, well, who else copies well? To the tune of $6.4B!

Just How Big Has Consulting Grown?
To have an appreciation of just how big the giant consulting firms have grown, primarily through outsourcing and implementations (gee, isn’t that what hospitals pay vendors to do?), check out this math: • Per Health Data Management, • Per Healthcare Informatics HIS vendor revenue for 2010: 2010 Top 100 HIS Vendors (sic): 1. McKesson = $3.1B #2. Dell (Perot) = $2.5B 2. Cerner = $1.8B #8 CSC (FCG) = $1.3B 3. Siemens = $1.5B (est.) (Xerox isn’t mentioned…) 4. GE = $1.3B • Per Modern Healthcare for “provider” consulting 2010: 5. Epic = $800M (est.) #1. Deloitte = $372M 6. Allscripts = $704M #6. ACS = $123M 7. Meditech = $459M # 8. E&Y = $102M 8. NextGen = $292M Wow, hard to tell one column from the other in terms of revenue!!

Lessons For Today?
• We’ve come a long way from the good old days when Sheldon, George and Ron hanging out a shingle as early HIS consultants. Some thoughts if you considering engaging a consulting firm based on this brief walk down memory lane; check out their: – Education/Expertise - George was a PhD, Sheldon and Ron literally wrote the book - don’t pay to train anyone’s rookies! – Vendor Experience – George, Ron & Shelly all started their careers working for vendors, so they knew their tricks! – Temporary Assistance – hire for a specific project, not as “partners,” then show them the door. – Reasonable Fees – most community hospital projects should cost thousands, not millions… – Conflict of Interest – if consulting firm A also specializes in implementing vendor B, guess who they’re going to recommend? Caveat Emptor!

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