Legacy Back Office Systems are Costing Healthcare

Okay blog readers, I have been saying this for years, the two (2) biggest controllable cost factors in Healthcare continue to rise: Labor and Supply Chain.  So allow me to offer the following statistic from US Bureau of Labor Statistics (2008), Thomson Reuter Healthcare (2009) and, RC Healthcare (2011).

And, now let me say it this way, your current ERP strategy is costing you and you now have the base for a business case to re-write your ERP strategy.

Healthcare has become an extremely competitive and highly regulated industry.  Yet, the systems in the back-office (Human Resource, Payroll, Time & Attendance and Supply Chain Management) have not been tended, updated, and improved upon.  The cost of not reviewing these Legacy systems (Lawson, Meditech, GEAC, and home grown solutions) is beginning to weigh on Healthcare because these systems do not support the process improvement and automation that all other industries have adopted.  Too often than not, hospital’s (and in many cases, the Health System’s) Enterprise Resource Planning (ERP) system was implemented ten (10) plus years ago and mapped the healthcare business process (recruiting, hiring/on-boarding or AP invoice matching) of the time.  In effect, the current system has locked hospitals into hiring, recruiting and purchasing processes that were devised at about the time of the first Apple computer.

Yet, the strategic imperative for growing enterprises in healthcare is to achieve operational excellence.  As hospitals grow in complexity and scale, pressures mount to sustain high levels of performance and excellence in how they manage Human Resource (HCM) and Supply Chain Management (SCM) business processes. To help meet these challenges, hospitals must turn to their ERP solutions.  A modern ERP solution must be expected to achieve four broad business goals:

  • Facilitate rapid and effective decision making
  • Enable business process efficiencies across the enterprise
  • Extend/accelerate competitive advantage
  • Adapt to evolving business needs on a cost-effective basis

Most hospitals, however, tend to focus on the “transactional” components of their “HRIS”, that is “how an employee’s demographic data is maintained” or “how a new Nurse’s data is transferred from ‘recruiting’ to ‘HR’”.  As I have previous documented in this blog, “Healthcare Payroll Leakage” or “Nurse Labor Cost Containment” in of itself will provide the cost savings and “ROI” for the replacement of the back-office, and we are now aware that both Labor and SCM are the most “controllable”, so why has the hospital not revisited its’ ERP Strategy?

Well, many hospitals (and in many case, the Health System) have got themselves stuck in “vendor lock.”  Once the legacy system vendors made its’ way into your hospital, it makes sense to stick with the products they offer in their umbrella.  But, it is important to go through a “sourcing process” and invite in other potential solution providers to keep it competitive. This is especially true when you are looking at a required “upgrade”.   Too often, people get locked into one vendor strategy, and they forget to review why they purchased the system in the first place (recall the “Business Case”, it was most likely something about “doing more with less effort” and some “Dashboards to view KPIs”).   Understand that there isn’t a whole lot of pressure on that incumbent vendor to keep things tight and focused.  Explore your options, and don’t forget to
“beware of the bundle.”  Vendors love to bundle…they bundle things together, and sometimes, a bundle could make sense, but unfortunately, most of the time, a bundle contains more than you need (often called “shelfware”).

Before you commit to “upgrading” your current legacy back-office (ERP) review what your hospital needs and needs to accomplish with its ERP strategy. These “requirements” will help you determine which applications and what kind of functionality your current ERP strategy is costing you and you now have the base for a business case to re-write your ERP strategy, as well as going a long way toward easing the implementation process to achieve real cost containment and reduction. But, first consider “your rationalization” requirement: do you have more than one ERP vendor in the house?  If, so look to consolidate, for if nothing else, you can save on only having to maintain one set of source code.

Separately, consider the following:

  • Do your hospital’s business leaders support the ERP upgrade/re-implementation project? Are they involved in deciding which business processes are included in the ERP package, how to phase in the rollout and how to measure success with the implementation? For an ERP to succeed, executives throughout the organization — especially those heading up the various departments that will use the ERP applications — must be a part of the rollout.
  • Who are the line-of-business leaders that can be responsible for measuring the business benefits relevant to their department’s goals? Employees beyond the IT department need to own the success of the project.
  • Who will be the ERP project manager? One person — an outside consultant or a current employee — should be in charge of managing the process to choose an ERP solution; coordinating demos and consultations with vendors; leading a team of representative from each area of the hospital, including finance, SCM, and human resources; and coordinating meetings between key users of the new system.
  • What are the specific business problems you need to solve (it is not about technology…it should always be about how to improve patient care and the bottom line improvement)?
  • What are the goals and metrics that you will use to measure the business benefits of your organization’s new solution? A good starting point for these metrics is the hospital’s KPIs — See my Healthcare Back-Office Best Practices to Hard ROI blog for specific examples).
  • What features and functions do you need from a new solution that will help increase users’ productivity and provide access to the business data users most need?
  • Are there best practices you need to adopt for process improvements?
  • Which users across the hospital will need to be trained on the new system? As with any new system, the success of your ERP implementation will largely depend on end-users’ ability — and willingness — to adopt it (Change Management is not just a “Communication Plan” and “Training”).
  • Will the ERP package be able to adapt to changes in your business as your hospital/System grows?

Hospitals of all sizes and in all regions of the county are finding it difficult and costly to continue to update and modify their legacy back-office solution after they have been installed.  The initial investment to acquire and implement the ERP system was substantial.  But even after the system is up and running, the costs continue to mount as the business evolved, requiring the ERP system to evolve as well to keep pace, process flow automation, EDI transaction set, and ever increasing system “integrations”. So the cost must be supported by “process improvements” that will help pay for replacement.

Begin the evaluation by gaining internal alignment and building upon good relationships with internal clients or users, like doctors and nurses who need services from IT (is not about “data”, it is about timely “information” so they can help run the business).   Healthcare organizations have become better at getting everyone on the same page, but understanding departmental needs will help to create a true set of requirements, so you have some visibility into what those needs are and what they may cost.  Failing to maintain internal alignment, makes it easy for vendors to approach specific departments and throw off an organization’s true needs.   Too often, your legacy vendor will approach the hospital or physician groups and get them wanting solutions that may be overlapping with something the IT department already has on its strategic plan.

Finally, question your maintenance charges.  Push back and question the operating costs and maintenance charges.  They tend to go up 3 or 4 percent every year and no one asks questions.  One of the more common ways to question charges is to ask yourself, “what actually needs maintenance.” Sometimes, a system is old and works fine, and you don’t need that platinum level support; 8 to 5 is fine because you aren’t changing it.  Other cases include simply going back and telling a vendor you aren’t comfortable with certain charges.  If you think about it, maintenance is 18 to 20 percent of the purchase price, and then it goes up 3 or 4 percent each year.  It doesn’t take long, about five years, until you’ve re-bought that entire product. That’s an important thing to bring to the attention of your vendors.

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