This Week Health

Today: Death by 1,000 Contracts

Having trouble with your IT budget. It could be due to the advent of subscription pricing. Today we discuss how to get in front of it.


Today in health it death by a thousand cuts or death. By a thousand contracts, the impact of new contracting models. On the health it budget. My name is bill Russell. I'm a former CIO for a 16 hospital system. And creator of this week health, a set of channels, dedicated to keeping health it staff current and engaged.

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Okay. Most days I cover a new story. Some days I respond generically to a conversation I've had with a senior it executive. Today I was talking budget. With a health it executive, and we discussed the new pricing models and their impact on budgets. So I thought I would discuss it with you. You see cloud brought about.

A new pricing model. And at the time it was called subscription pricing. It may still be called the same thing. It was really interesting. You pay only for what you use. The software gets updated for you automatically. And that meant no more big, massive upgrades. And there were less long-term contracts. You could actually subscribe by the month and in some cases,

Even by the day. And I know that's not really practical, but there are. There actually are some use cases. Where you could subscribe to something by the day, ramp it up, use the computing power, ramp it back down. So, , and anyway, these new subscription models were not only for software. It was also for hardware, as I just mentioned.

So how things used to be done was with a capital purchase of hardware and software. You bought something, you owned something. You could use it as long as you wanted, but you were responsible for the updates to the software and the labor required to keep things current. When you hear legacy software, this is in most cases where that.

Terminology came from. We bought stuff and we drove it until it was really old. I mean, it was just so out of date. , think about how it would look today. If you saw a Plymouth K car. On the road. And I know some of you don't even know what that is. It's so old. You don't even know what it is. We had software that was that old in our data center, running obscure code to support important pieces of our business.

The switch was a little bit like leasing a car. You always had the newest car and every two or three years, you got another car, a new car. The catch, you always had a payment. You never owned anything. The other thing is that almost every it vendor. Has created a subscription based licensing model. In fact, investors almost require it now.

I remember when we bought our phone system, something that used to be a capital purchase. In fact, we had 20 plus year old PBX is running in our health system. Think about that 20 years old. So it's 20, 23, 20 years ago would be 20. , 2003, the iPhone did not exist. I don't know what phone you were carrying, but just think about what 20 year old software looked like. We had one of those running, one of our primary hospitals.

, you know, But this time. So we, we went out and we were replacing these things. , the, the hardware was capitalized, but the software and licenses were a subscription model. , so much per month per device. And much like a car, the costs were comparable in year one. Roughly year one to three, but after three years, the ownership model was much more advantageous than this subscription model from a financial standpoint.

However, I will point out that the subscription model kept our stuff current and the models took into account. Keeping those devices upgraded. Almost automatically across the internet, taking less labor and keeping us more secure. So, which is better. It really doesn't matter. Who cares really? Because there's almost no choice anymore. It's all subscription.

So why are we talking about it? Well, this, this shift created some of the budget challenges. We now face in health. It, we piled on 10, 20, 30, 50 subscription contracts. Even if you're not a CIO, you've experienced this in your consumer life. You now have several streaming services. Apps on your phone and other devices or storage for your photos that are all monthly recurring expenses. Sometimes you even find that there is a, a subscription that you lost track of that you're still paying for.

That also happens in health. It. How do we address these challenges, layer, subscriptions, growing costs for it and no alternative purchasing method? Well, I'm going to talk about, , five, five things. I think. That's I think about this. This is just off the top of my head. , managers subscriptions.

Just like personally managing your subscriptions is so important. Be it hardware or software pay for what you're using and need and only for what you're using a need. We had perpetual audits going on in our it department. And this was a six and a half billion dollar health system. Once they finished going through all the contracts, they started over.

Why? Because every year they found hundreds of thousands, if not millions in savings, and that's not an exaggeration, sometimes it was over buying. Sometimes it was not turning things off. , over by and can happen when your S your staffing levels change. Like they might've done just recently, and you don't turn off any of the licenses.

Or you might remember with one software solution, but you don't turn them all off.

Why do we not turn things off? Well, people are busy. You may finish a migration or just never turned something off.

I know it's hard to believe, but we've already established that. Personally, we do this with some streaming services and other things that we've signed up for. We just lose track of them. We just fail to turn them off. So manage your subscriptions. Second is realize the benefits. This can be a harder conversation.

Managing hardware and software with a subscription model should take less labor. We had, I think it was 13 layers. I'd have to go back and look at some of the models. I think we had 13 layers of architecture of our architecture stack. And each layer represented labor software maintenance costs. As we signed on for cloud services, we eliminated the need for several layers. For example, when you sign up for Workday.

You don't manage servers anymore. Some networking data center, maintenance and cleaning the operating system. And so on. If that is the case. When you sign the Workday contract, you need to realize those savings, meaning you don't just create the cost justification you follow through and do the work of that cost justification.

In many cases, those cost justifications have labor savings that are never realized because the labor doesn't change. When we presented a cost justification at my house system with labor changes. Our CFO at our health system took that number out of our headcount for the next fiscal year. When calculating our salary number for the next year, it was based on the reduced head count.

If we promise savings, we were on the hook to deliver those savings. So you have to realize benefits. If you're eliminating layers of work, you have to realize those benefits. Number three, manage overlapping over subscriptions. It was amazing to see how many tools we had in our health system that did the same exact thing. And we paid for each of them.

If this subscription is granular, only choose the services you need. If it's not let's consolidate systems on the most effective system. Which gets me into my next item, which is used platforms. If you're going to have higher costs, contracts for subscription models, then you have to have less contracts to keep the costs in line. Fewer contracts doesn't necessarily mean less costs, but it does tilt the odds in your favor. Look for platforms that have multiple uses.

The best example that comes to mind is service. Now service now is one of those platforms and they are not a sponsor. , they used to be like a service desk. ITSs kind of thing. Now they are a platform for automation of almost anything across your entire health system. All right. So manage the overlap and subscriptions use platforms, and one final thought.

Negotiate better. Hire someone to negotiate for you. If you can't. We didn't have our frontline managers negotiate contracts. In fact, we had no managers, negotiate contracts. There's several reasons for this one is they're, they're likely not trained to do so. Number two, it kept them from.

, getting in trouble, if you will accepting things, they shouldn't accept from vendors and losing their job as a result of it. And we had people whose job it was to negotiate contracts. In fact, we had a person that was involved in every contract and it CFO, if you will, as the CIO, I got involved at different points along the way. In one case, I asked the company for a completely different pricing model.

Then what they had presented and they went back to their team and created a new model for us. And this helped us to consolidate 10 systems into one contract and one vendor. You know, this bullet point actually could be a whole episode unto itself. There is a skill to negotiating. There is a value of having a good negotiator on staff.

And. Quite frankly. It's software. It's a lot of this is nebulous costs. And you have not because you asked not. So, , there were the five things just off the top of my head manager subscriptions realized the benefits, , manage overlap and over subscriptions, use platforms and negotiate better.

Hopefully this gave you something to think about.

Subscription pricing is the new norm and we have to adjust to it in order to keep our budgets in line. All right. That's all for today. If you know someone that might benefit from our channel, please forward them a note. They can subscribe on our website this week or wherever you listen to podcasts, apple, Google, overcast, Spotify, Stitcher.

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