Outsourcing Excellence Award – Best Interest Alignment – Northern Arizona Healthcare and Perot
Over the years, Northern Arizona Healthcare’s (NAH) IT department had installed 60 best-of-breed modules and then worked hard making sure the interfaces between them worked so the system could provide useful information to its clinicians. “The difficulty was if you changed something in one module, 60 interface changes later, it could talk to the others. This wasn’t working for our doctors,” says Jim Puffenberger, CEO.
The best way to solve the problem was to purchase an integrated healthcare IT system. In 2002 the staff chose Cerner Corporation’s Health Care Information Technology System. Once it had it, the challenge was implementation.
“We recognized right away we didn’t have the internal horsepower,” says the CEO. NAH is located in rural Flagstaff; it is surrounded by state-owned land as well as the Grand Canyon. This lack of land for bedroom communities boosted the home prices, making it difficult to recruit affordable IT personnel, according to Puffenberger. Outsourcing the IT became the best option.
Why NAH chose Perot Systems
Puffenberger says Perot Systems’s (PS) financial strength was important. But so was its bench strength. “Perot Systems has 4,000 professionals across the globe. They brought someone in to do a specific thing and then they went back to their regular job. We found this model cost-effective and efficient,” explains the CEO.
Puffenberger had another requirement: it wanted its outsourcing supplier to transition all of NAH’s 90 employees and keep the work in the community. “Keeping employees local was a big factor for me,” he says. He also insisted Perot provide a similar benefits package; “this was a big issue we had to solve,” he says.
NAH turned to another healthcare system in Arizona to evaluate the Perot offering. Its leaders talked to the executives at Catholic Healthcare West in Phoenix. His staff flew to Texas to visit Perot’s corporate headquarters. “We liked their no-nonsense approach of getting things done on time and on budget. This really appealed to me as the pragmatic financial guy,” says Puffenberger.
At the outset the partners had to make a decision: should they just turn on the Cerner system or run both systems side by side? “There’s a lot of angst when you turn on a new IT system,” he says.
Puffenberger says the Perot Systems’s account team helped his staff make the choice: it didn’t want to spend an extra $10 million to run concurrent systems. The partners took two years installing the factory solution then customized the software for each department.
The first challenge was the IT department had to make the new system “friendlier to the users.” Neither party had discussed who was going to educate the medical staff. NAH formed a special team whose job was to listen to the complaints and suggestions for improvement. “We didn’t anticipate this, but the team provided Perot Systems with information they needed to change the IT system. This is a good example of how we adapted to things we didn’t anticipate in the beginning,” says Puffenberger.
The next challenge occurred when the IT partners discovered many hospital departments had their own individual systems that didn’t integrate with the others, so they couldn’t share data. “This created much duplication that frustrated patients,” reports Puffenberger. Perot Systems had to uncover all the individual applications, servers, and networks so it could build a centralized data center.
Puffenberger says Perot Systems “had the bench strength and the skills we needed to complete the implementation and meet our milestones.”
Perot Systems had its own challenges, adds John Schofield, client executive for Perot Systems. Cell phone and Internet service was spotty in rural Arizona. “We had to find a vendor to build out a communications network,” he says.
The original outsourcing engagement was just ITO. Two years into the engagement, NAH decided to outsource its billing office and entire revenue cycle to Perot Systems. Its long-tenured business manager retired, so NAH had to determine what to do. “We realized we wanted to concentrate on our core, which is providing healthcare,” explains Puffenberger.
Schofield explains that the billing office has to complete the patient’s medical record from admissions to discharge before the hospital can send the bill to Medicare or payers like Blue Cross. “It’s hard to control all the pieces,” he says. Schofield says the IT department tweaked the patient accounting system “so all the pieces lock together.”
The partners created four criteria for incentives for the billing office. They included:
- Reducing the days in receivables
- Increasing cash collections
- Lowering the percentage of bad debts
- Reducing the percentage of receivables over 90 days old
If Perot Systems employees meet all four criteria on a quarterly basis, NAH will pay the supplier an additional $250,000 a quarter. The supplier shares this surplus with the employees doing the work. “We knew we would have a significant increase in cash coming through the door if they made their goals,” says Puffenberger. “Paying $1 million a year to earn several million made sense to us.”
Schofield says Perot Systems employees earn the bonuses regularly because the billing process is “more efficient.”
To date the CEO reports Perot Systems “has done a better job of managing the business office than we ever did.” When PS took over, days in receivables numbered 64. Now it’s down to 51. “That’s significant for us,” he says.
Puffenberger adds NAH has a similar arrangement with Perot Systems for its employees in the medical records area.
The two companies have one more way to keep their interests aligned: The NAH CIO is a Perot Systems employee, who is at the vice president level. “He is an integral part of our management team,” says the CEO. “We include him in all meetings and off sites. He knows the entire organization thoroughly, not just the IT side. He’s involved with where we are going as an organization.”
Schofield adds that he feels like he’s “an important part of Jim’s team.” He says he often speaks up at the board meetings. He says the board “wants me to understand their strategy so I can modify how we work to stay in alignment.”
Going the extra mile
Seven years ago NAH took over the management of a small critical access hospital 55 miles from its campus. Perot Systems set up a communications network so the NAH radiologists could read films remotely in Flagstaff. “They just did it for us,” marvels Puffenberger.
The upgraded infrastructure helps provide better healthcare because there is better communication with helicopters and ambulances. Schofield says today physicians can look at a monitor and tell the paramedics what to do. “We’re still adding more technology to their ambulances and helicopters,” he says.
Currently NAH is edging closer to complete implementation of electronic medical records (EMR). The last piece is physician order entry. NAH needed a chief medical officer to help its physicians learn the requisite skills. Perot Systems sent an expert to do this. “They didn’t charge us for this either. To us, this was a pretty big deal.”
The talk now among healthcare providers is how they can tap into stimulus dollars allotted for electronic medical records implementation. Puffenberger says Perot Systems calculated it could receive $6.8 million and is helping the healthcare provider tap into those funds when the government begins to distribute them next year.
Implementing an integrated IT system now provides more information. “We can now make better decisions for our community,” says Puffenberger.
The system also allows the clinicians to deliver better healthcare. For example, many repeat patients can’t remember the medications they are taking. Now a doctor or nurse can find that information online immediately. “This is a big issue because medication conflicts are a big cause of medical errors,” says Puffenberger. Also, lab results appear instantly; the old system did not provide real-time data. And every physician who wants to can join the network and receive patient information in their offices. “Before we had to fax the paperwork to them,” explains the CEO.
Currently, NAH has automated 75 percent of the patient data in electronic medical records. “Even at 75 percent, our clinicians consider the EMR the ‘source of truth’ for their ability to make decisions about the quality and safety of patient care,” says Puffenberger.
Perot Systems employees are constantly analyzing data. As the recession deepened, Schofield noticed an increasing number of patients weren’t filling their prescriptions because they couldn’t afford them. Perot Systems researched “the world of pharmaceuticals.” Now, when patients leave NAH, the staff gives them a list of programs where they can get discounted or free drugs.
Now that the system is up and running, Puffenberger thinks NAH “would like to try to convince others to join our system.” He says Perot Systems has been flexible about rolling its solution out to other organizations. “If we don’t go over the specified number of users, it won’t cost us additional dollars,” he says.
Puffenberger says his supplier “helps us keep our finger on the pulse of rapidly changing technology. They continually create innovative solutions for our doctors and patients. The end result: better, safer, and timelier patient care.”
Like most American hospitals, Puffenberger is concerned about the move to a national healthcare model. Outsourcing has helped NAH build an investment portfolio “large enough to take care of our capital needs if that happens. We will be the last man standing.”
Why this relationship works
When there’s a disagreement, Puffenberger says the two executives “sit down and talk about it.” He meets with Schofield privately every two weeks. To date, he says “there hasn’t been an impasse.”
Perot Systems has been flexible. Originally the partners implemented an imaging system in radiology. After a year, it was evident the system was not as robust as it needed to be. “Perot Systems worked with the radiologists to improve it as much as possible,” reports Puffenberger. “But it became evident we had to change. He says the supplier negotiated the price with the new vendor and wrote the interfaces for the system. “Perot Systems was wonderful to work with in taking the old system out and putting the new system in,” he says.
Perot Systems has become a vital part of the Flagstaff community. “We raised money for the cancer center and the symphony,” reports Schofield.
Lessons from the Outsourcing Journal:
- Successful outsourcing relationships adjust to situations neither party anticipated when they drew up the contract.
- Financial incentives and a more efficient billing process encourage the supplier’s revenue cycle staff to bring in more money to the buyer’s enterprise.
- Having the supplier’s client executive familiar with the entire organization, not just IT, helps IT support changing business strategies.
Best Interest Alignment Criteria: One or more of the following characteristics:
- Best contractual incentive mechanism in place to motivate the parties to mutually work toward the same objectives and to realign their interests at such times as new business needs or opportunities could cause their interests to no longer be aligned
- Best non-contractual incentive mechanism by the buyer in place at the staffing level to motivate the desired performance of the supplier’s staff
- Executive compensation in both companies is tied to achieving a successful relationship and executives stay engaged throughout the length of the relationship
- Having achieved actual business outcomes because of the alignment/incentive structure