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Extensive IT Outsourcing

According to KLAS estimates, 12 percent of U.S. hospitals with at least 100 beds are now outsourcing a majority or all of their IT department. With improving customer satisfaction and a number of providers implementing increasingly complex technology with limited resources, extensive Information Technology Outsourcing (ITO) is a market that should be poised for growth. However, collectively, outsourcers have recently seen more clients discontinue extensive ITO than those that have signed new contracts.

In fact, the total number of outsourced hospitals actually decreased from 356 in 2007 to 303 in 2008, due to a few multi-hospital organizations that discontinued their agreements. This study attempts to give the reader a more complete view of what is happening in the extensive ITO space by measuring outsourcer performance and providing insight into the experiences of the outsourced organizations. For the purposes of this study, unless otherwise noted, ITO refers to engagements where a majority or all of the IT department is outsourced.

Ninety-five percent of the participants for this research were C-level or other hospital executives. As with prior research, KLAS has been able to interview or confirm the status of virtually all North American healthcare organizations of 100 beds or more with current or previous outsourcing engagements.

Collectively, providers that outsource believe that the level of IT service they receive from their IT outsourcer is an improvement over the IT services they received previously. Over 80 percent indicated that the level of service has improved, while less than 4 percent indicated that it has declined. This is an improvement from the 2006 study where 75 percent indicated that the service had improved and 9 percent indicated that the service had declined.

As in any industry, not everyone is happy with their outsourcing experience. Since IT outsourcing became prevalent, there have been 54 organizations that have either discontinued outsourcing or changed outsourcers. Of these 54 organizations, 76 percent have discontinued outsourcing by either bringing everything in-house or reducing to less than 50 percent ITO, while the other 24 percent have changed outsourcers. Major reasons for discontinuing outsourcing or changing to a different outsourcer include the outsourcer not delivering as expected, higher-than-expected costs, a lack of control, objectives not being aligned, and a poor cultural fit. There are also some providers that brought IT back in-house because they merged or were acquired by a health system that had in-house IT capabilities.

IT outsourcers overall do not perform as well with application support, which may be why we are seeing some organizations opt to bring or keep this area in-house, while outsourcing some of the network and infrastructure components where outsourcers generally perform well. Maybe the most challenging issue for the ITO market is the declining number of providers that plan to continue to outsource. In 2006, 94 percent indicated they would continue to outsource, while in this round of research only 82 percent indicated they were planning to continue outsourcing.

Vendors qualifying to be included in the ITO research are ACS, CareTech, Eclipsys, McKesson, Perot Systems, and Siemens. Early findings were also included for CSC (FCG), PHNS, and Phoenix Health Systems.

ITO Vendor Performance Research Tools:

• Log in to search the KLAS Database
• Access sample report, read more about the 2008 extensive information technology outsource research, or purchase the report