One-on-One With Kaiser Permanente CIO Phil Fasano, Part II

June 24, 2011
When word came in mid-March that Kaiser Permanente had signed a $500 million, seven-year deal with IBM for management of its data center operations,

When word came in mid-March that Kaiser Permanente had signed a $500 million, seven-year deal with IBM for management of its data center operations, the industry took notice. But a week or so later when IBM announced 5,000 job cuts of its own, some wondered if KP knew what it had gotten into. Not to worry, says CIO Phil Fasano. IBM, he explains below, is big enough, even after the downsizing, to more than handle the job. Recently, HCI Editor-in-Chief Anthony Guerra had a chance to talk with Fasano about this issue, and much more.

Part I

AG: What are the main challenges of doing an outsourcing deal?

PF: The bottom line is that you don’t do outsourcing just to save money. If you are contemplating an outsourcing arrangement that will be deep, you should want and get more from them than just the basics, they should be able to offer you capabilities that uniquely advance your goals. From our perspective, we thought of where we wanted to be with our data center operations, and to get there we needed a partner. When we looked at potential partners, IBM came to the top of the list.

You need to do this for the right reasons. You must consider what your goals are for the activities in question, and then create your agreements. Organizations that don’t accomplish what they intended in an outsourcing deal probably were not able to articulate or focus on what they really wanted, so, of course, they couldn’t get it in writing. If all you want to do is save money, there are better ways to do it than outsourcing.

AG: I’ve heard anti-outsourcing CIOs — even one who had worked for an outsourcing company — say that those organizations often try to intertwine themselves with the hospital, so it’s very difficult for a facility to extricate itself from the arrangement. I’ve also heard nightmare scenarios in which no one entity feels responsible for a specific piece of functionality, and finger pointing ensues.

PF: I would describe what we have done as asking IBM to perform services for us. The world calls this outsourcing, but it’s about contracting for services, people, knowledge and processes, and bringing those resources to bear on our data center. But I did not outsource any of the physical assets of our data centers, so we still own our data centers. All the equipment from those centers is still on our balance sheet. What we have done is asked IBM to partner with our knowledge of healthcare to advance our capabilities even further.

This is a different approach than traditional outsourcing, which is oftentimes motivated by saving money. In that case, the organization sells its assets and then you can be in a web because they own your equipment and facility and they are responsible for the people. At that point, they have complete ability to effectively tie you up if they choose to. But that is not the only motivation of companies in that business; some also perform very well and have an excellent reputation.

AG: Does this outsourcing deal allow you to focus on the application layer and do more work with clinicians to ensure they are using the systems extensively and properly?

PF: I am going to question your premise. There is an assumption that if you outsource, you can then pay attention to other things. We would argue that what you have outsourced remains as much of a focus as it ever was for your management team, and in many ways becomes more of a focus. If you don’t continue to maintain the focus you had, you have basically abdicated responsibility, which is not what we plan to do here. We will maintain responsibility, but we are partnering and leveraging IBM’s skills. My management team will remain responsible, and the executive in charge of infrastructure will continue to maintain a staff of 1,000 people. Now, you can just think of this in the sense that IBM has become a member of his team. For all things in this area, he is still accountable.

AG: It’s been well reported that you’ve spent a lot of money with Epic. Do you agree with a certain sentiment in the press and blogosphere that Epic is a high-priced way to go?

PF: I have not been reading that. I can tell you that the Epic product is comprehensive and, for a system like ours, getting on that product has given us a distinct advantage. It has been written that we have spent around $4 billion for the project. Now, it’s important to note that Epic did not receive all of that money, which includes our costs of managing the implementation and training the physicians. Having spent that money, I can tell you that our organization feels as good as you can about the value we get from KP HealthConnect and all the benefits we garner from having that system in place and capturing clinical information for our members.

AG: How would you describe your tenure at Kaiser so far?

PF: Before I came here, our chairman and physicians were on a mission to implement KP HealthConnect. When I joined, I reflected on how well things were going and how well the implementation and training of physicians was going. Our docs were what I might call enlightened in terms of technology, as they had always used it at this company to help them improve outcomes. HealthConnect is the largest single implementation investment in the private sector. I got involved to ensure that and improve the ability to deliver capabilities with reliability. I wanted them to feel confident since today we have over 3 million members using it actively for e-visits and to get labs and renew prescriptions.

I had to learn about healthcare. I didn’t know it before I came to this company, so I had a crash course which involved meeting with some brilliant doctors and asking a lot of questions. They were wonderful in helping me understand the priorities and challenges and figuring out how I could help them achieve their vision.

AG: Tell me about how Kaiser’s unique structure impacts the work you are able to do.

PF: We have the Permanente Medical Groups. Eight are independent, for-profit groups closely related through contracts. We are an integrated care system, with end-to-end administration, and IT throughout. We have every position in healthcare all under one roof which gives us a wonderful advantage. The dynamic here is that our doctors practice preventive care and want to leverage information technology to the fullest to benefit our members. We have major population care tools that allow them to manage chronic diseases, and our members have achieved enormous benefits relative to the general population. Our cardiac patients have the highest survival rates and lead successful lives beyond anything considered reasonable by any doctor.

The company was founded on the premise of preventive care. We have been using IT in that mission throughout our history and that permeates the company. That is as much of who we are as anything else. We are a technology-enabled healthcare company to our core, and so IT is well aligned with KP’s goals.

AG: Will you make any specific moves to position the organization for HITECH funds?

PF: I think, like any company or organization in the country, we are looking at that as an extraordinary step taken to stimulate focus in healthcare around information technology and to get people focused on its potential. That said, we have made some investments that we have determined are creating value for our members and we think, potentially, there may be some money in that package that flows to Kaiser. I can’t say that we are spending an enormous amount of time looking to get at that money. I’m sure some have more focused efforts, but we do have people who are knowledgeable about that package and are interested in it. Going forward, I hope we can serve as a beacon for what healthcare IT is capable of.

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