Are You Paying Too Much For Health IT Maintenance?

By Ken Congdon, editor in chief, Health IT Outcomes

Servers, storage devices, networking gear, and operating system software — these are the building blocks of the IT infrastructure for most businesses, and they cost a great deal of money to purchase and maintain. Given the data demands of today's healthcare industry, hospitals and healthcare systems are well aware of the expense of health IT infrastructure upkeep and upgrades. However, what they may not realize is how much they may be overpaying for the maintenance contracts on this hardware and software.

Over the past six years or so, the economic climate forced most businesses (especially hospitals and healthcare facilities) to reduce their capital expense budgets. In response, hardware and software manufacturers reduced the price of their products to keep sales fluid. To prevent these price reductions from severely impacting profitability, many vendors adjusted their sales models to include more service-based offerings. Device or system maintenance contracts on their products were among the most popular of these offerings. In fact, maintenance contracts are now the primary contributor to profitability for some vendors.

Many hospitals today spend hundreds of thousands of dollars annually on maintenance contracts for IT system hardware and software. This is not necessarily a bad thing. On the contrary, maintenance contracts are a sound and recommended investment to ensure your systems always perform reliably. However, it can be much more difficult for a healthcare procurement professional to ensure they are getting a good deal on a maintenance contract than it is to ensure they are getting a good deal on the hardware or software itself. For example, IT hardware and software prices are fairly public and tend to fluctuate in harmony. Procurement professionals can easily do price comparisons on competing products and conclude, with a high degree of confidence, whether or not they are getting a fair deal. Maintenance contract pricing, on the other hand, is not as public and can fluctuate greatly depending on the vendor, the time of year, and the types of discount programs and promotions a vendor issues throughout the year. Maintenance pricing can also be affected by whether the contract is sold and serviced by a VAR (value-added reseller), a distributor, or the vendor itself. All of these variables can be difficult for procurement professionals to track and evaluate. As a result, a healthcare facility may be spending thousands of dollars more per year than it should be on IT system maintenance. However, you no longer need to accept this fact as an inevitability. Third-party service providers are beginning to emerge that specialize in reviewing and renegotiating your existing service maintenance contracts to ensure your healthcare facility is getting the best possible deal.

To Renegotiate Or Not To Renegotiate... That Is The Question
Virtual Procurement Services (VPS) is one such service provider. The company's CEO and founder Scott Robins has 10 years of experience working with IT system vendors as a VAR. He and his company have leveraged this experience to develop a software tool that analyzes maintenance contracts based on variables such as part number, model number, geography, discount promotions, etc. Using this tool, Robins claims that his company can determine, with 75% accuracy, what your maintenance costs should be. This tool also determines the discount programs or promotions issued by the vendor that your facility may be eligible for and can be applied to your existing contract.

According to Robins, VPS is paid based only on a percentage of the savings it recoups for it clients. However, approximately 60% of the time, VPS recommends no changes be made to the existing maintenance contract. "In some cases, the IT procurement professional negotiated a great maintenance contract," says Robins. "In other words, there are no savings to be had or the VAR or vendor has even agreed to provide the service at cost or at a loss to get their foot in the door. In other instances, there are some cost savings available on the maintenance contract side, but asking for this money back may jeopardize value-added services the vendor or VAR are providing, such as rack-and-stack or data migration services. In both these scenarios, we recommend that the client leave the maintenance contracts as is."

The other 40% of the time, VPS discovers that the client is significantly overpaying for their maintenance contracts. In these instances, VPS outlines the areas of overpayment and discount eligibility for the customer and works to renegotiate the existing maintenance contract with the vendor — all without harming the client/vendor relationship (claims Robins). "When we enter into a maintenance contract renegotiation with a vendor on behalf of a client, we typically save that client between 24% to 32% on that maintenance contract," says Robins. "With many hospitals spending hundreds of thousands of dollars annually on maintenance contracts, these cost savings can be substantial."

I have yet to speak with any of VPS' clients to substantiate the company's claims, but plan to in the coming weeks. Regardless, the concept itself is an intriguing one, particularly in healthcare, where executives and IT professionals are searching for surefire ways to cut costs to pay for expensive EHR (electronic health record) initiatives. Stay tuned for more on this topic.

Ken Congdon is Editor In Chief of Health IT Outcomes. He can be reached at ken.congdon@jamesonpublishing.com.