HIS consultants: when are they necessary, and why? - health care information systems - Cover Story

Healthcare Financial Management, June, 1993 by Steven H. Berger, Vincent G. Ciotti

INFORMATION SYSTEMS

The rapid escalation of consulting fees for the installation of healthcare information systems and the potential abuses associated with consulting relationships has prompted some to question the need to hire consultants for systems installation. Consulting arrangements were considered cost effective when information systems were first being automated, but the rising cost of consulting services along with the increasing sophistication of hospital personnel regarding computerization suggest that the use of consultants receive close scrutiny. Following some simple guidelines may limit potential abuses and allow hospitals to obtain maximum service for their investment.

As healthcare reform in the United States continues to be a major issue in President Clinton's agenda, the use of consultants in the healthcare information systems (HIS) industry is receiving widespread criticism for rapidly escalating and questionable costs.(a) Both vendors and providers are voicing concerns about the high cost and the uncertain outcomes of using HIS consultants.(b)

History

Consulting firms began helping hospitals install information systems in the 1960s. When computers were first introduced, only the nation's larger (300 beds or more) hospitals could afford the $1 million-plus cost of the mainframe systems then available. Because relatively few software packages were marketed at that time, most facilities developed their own HIS software, employing expensive teams of analysts and programmers who "reinvented the wheel" at each hospital. Based on the work required, consulting firms offered a potentially lower-cost alternative to hiring large numbers of permanent staff for the system's installation, then cutting back to the smaller number of people necessary to maintain the system following its installation. The widespread introduction of shared systems in the 1970s enabled the nation's small hospitals to automate without having to incur the huge cost of in-house mainframe systems. Amazingly, installation of those early shared systems usually was performed at no charge by major shared vendors. The profit margins of early shared vendors were so high that they eagerly absorbed the salaries, travel, and other expenses of installers for the few months it took to convert the limited number of financial systems involved. Only the larger mainframe users, who by that time were delving into patient care applications, still required the help of consulting firms to train the hundreds of nurses and ancillary department technicians who used the clinical systems.

It was the introduction of turnkey minicomputer systems in the 1980s that prompted the widespread use of consulting firms for installation. The practice began when small, start-up firms introduced minicomputer systems that could be acquired for a fraction of the cost of mainframes. The one-time purchase of software cost far less than the ongoing fees of the shared systems they replaced. The technological advances of these minicomputer-based systems made them a favorite of HIS consultants. These systems also proved to be a lucrative employment opportunity for consultants because the small HIS vendors faced the daunting prospect of hiring and training dozens of experienced professionals to install their systems around the country in order to compete with the shared vendors' national presence.

It was only a matter of time before the managing partners of the major consulting firms recognized a market niche and provided the missing resources. As turnkey systems introduced automation into more clinical areas, the need for an outside team to handle the substantial tasks of training personnel and writing procedures resulted in a flood of both large and small consulting firms offering to install vendor systems. However, since consulting firms also traditionally had helped hospitals select systems, the stage was set for potential abuses, with consultants standing to gain large fees for installing the systems they recommended.

Typical installation fees

For this article, proposals from dozens of HIS vendors were analyzed to find an average installation fee. Since the cost of healthcare information systems varies widely depending on the size and complexity of the hospitals concerned, the systems were divided into three categories:

* Mainframe systems, which use the largest computer processing units and typically are purchased by hospitals that have more than 400 beds,

* Minicomputer systems, which are run on midrange computers and typically are purchased by 100- to 400-bed hospitals, and

* Microcomputer systems, which are run on PC-sized computers and typically are acquired by hospitals with fewer than 100 beds.

Exhibits 1, 2, and 3 show the prices proposed by leading HIS vendors at hospitals in each of the three categories. Typical installation fees have escalated dramatically due to the unbundling of costs forced on vendors by increased competition and the vendors' need to recover the expenses of the increased training and "hand-holding" required with today's sophisticated systems.