By Michael A. Cohen
The increased cost and dependencies on information technology have resulted in health care organizations seeking opportunities to identify ways to provide these services in a more cost-effective and efficient manner. More frequently the answer is to outsource these functions. Application Services Provider (ASP) is a relatively new type of outsource provider that delivers and supports software as a service over a network, such as the Internet. This trend is beginning to offer physician practices new and attractive alternatives for changing or upgrading management information systems.
As opposed to the traditional model of a one-time purchase of software and hardware and a small ongoing cost for maintenance and support, ASPs provide remote access to hardware and software on an ongoing, rental basis. This significantly reduces the upfront costs, but requires the payment of ongoing rent for the hardware and software. There are several different ASP models available but there are common concepts that can be utilized when considering any model.
An ASP rents the hardware and software application to the practice and is responsible for providing all the activities and expertise required to host, manage, maintain and support, as well as possibly develop or enhance the software. This alternative has created much interest in the marketplace for physician practices. The rapid acceptance of ASPs has been the result of several key benefits.
Practices can focus on their core businesses rather than information technology issues. As the dependence on information technology increases, practices need to allocate resources to assure the successful performance and ongoing enhancement to these applications. Depending on how a practice is utilizing IT, they will reach a critical point when they need to hire an IT professional or pay a consultant. An ASP can assume responsibility for much of this functionality and allow time and resources to be devoted to providing medical care.
ASPs can reduce the risk associated with implementing and maintaining applications. A practice’s management information system is essential to the smooth running and cash flow of the practice. Availability becomes even more critical as practices begin to use the Internet as a means of exchanging information for patients and providers and for electronic medical records. ASPs are designed to provide maximum availability, which should be documented in the service level agreement.
An ASP minimizes hardware and potentially software investments to reduce start-up cost and provide more flexibility in the future. In the traditional model, practices are required to make significant investments in hardware (server, routers, etc.) and software to create an operational system. ASPs reduce these costs because you pay as you go. This can provide greater flexibility in the future if you decide to change systems or need to expand the number of users.
Practices need to evaluate an ASP solution similar to any other IT investment, including cost benefit analysis and review of contract. Similar to other IT investments, special attention needs to be paid to the pricing structure. Items to consider include what circumstances allow for a change in the pricing structure and what additional costs are incurred when you add new users.
In addition, since you will be outsourcing mission-critical applications to the ASP, there are several things to consider:
Does the ASP have appropriate security to protect your information and does it meet HIPAA regulatory requirements? An ASP that does not work with health care providers may not have the appropriate policies, procedures and infrastructure to meet healthcare-specific regulations, specifically HIPAA.
What is your exit strategy if you want to leave the ASP or if it goes out of business? How difficult will it be to retrieve your data and applications? An integral piece of a contract should be the methods, timing and any costs associated with taking back your data and applications.
Does the hosting organization have the right to use your data? A practice should require the ASP to obtain your permission to use your practice’s data for anything other than the intended purpose.
Does the ASP provide a Service Level Agreement (SLA) that defines deliverables required for meeting expectations? The SLA should detail performance benchmarks that the ASP is accountable for maintaining. The document should include guarantees for performance/response time, application availability/up time and problem response time. In addition, the ASP should assume responsibility for upgrading hardware to maintain the levels agreed to in the SLA. A key success factor in customer satisfaction is to review and agree on all components of the SLA making the terms of this agreement part of a practice’s decision-making process.
What are the ASP’s policies and procedures for normal operations, such as nightly back-ups? While this may appear obvious, make sure that this is detailed in the contract, assuring protection of your mission-critical information.
Evaluating the financial impact of utilizing an ASP is a key component when considering this option and should rank as a major factor when deciding on IT strategies. To compare ASP costs to a more traditional internal application hosting, you will need to identify all of the costs associated with deploying, supporting, and maintaining these applications throughout the practice.
You will need to include more than the hardware and software license fees and ongoing maintenance costs. Other costs that will need to be captured include data lines, communication devices, server upgrades, back up, upgrades, etc. In addition, you will need to capture staff cost for maintaining, backing-up, upgrading and troubleshooting the system.
Total cost of ownership (TCO) is a framework used to capture and categorize the entire spectrum of expenses and liabilities associated with the implementation, maintenance and enhancements to a particular solution. A comprehensive TCO framework assists in the development of sound financial and cost-benefit analyses. Application TCO should rank as a major factor when deciding on IT strategies for all practice sizes.
Application service providers can provide an attractive alternative for medical practices that are looking for a new management information system. They can be a more cost-effective and flexible solution than the traditional acquisition model. This model can provide purely tactical, cost-cutting benefits, as well as strategic advantages.
Successful ASP implementation starts with the contracting process. Because you are outsourcing these important functions, you need to assure that the contract and service level agreement meets your practice’s needs. This document represents the real understanding of what happens during the life of the agreement and should be reviewed by your legal advisors. It is a vital document and not one that you file away after it is signed. It will contain schedule-upon-schedule of very substantial detail that will dictate the relationship and communication between you and the ASP.
Michael A. Cohen is practice manager at Idea Integration, located in Plymouth Meeting, Pa.