Is risk lurking in your vendor ecosystem?

By Felix Matthews, MD, MBA, managing director, and Chris Murray, senior manager, Deloitte Consulting LLP

Most hospitals and health systems depend on third-party vendors for a broad range of technologies and services. As business models evolve, keeping up with leading-edge technologies is becoming increasingly critical. Vendors that aren’t able (or willing) to continually innovate, could put hospitals and health systems at risk of falling behind their competitors or being unable to meet patient expectations.

In a recent blog on next-gen EHRs, our colleagues Chris Harris and Charles Talbot noted that many vendors appear to be positioning themselves for the Future of Health by tapping into enhanced artificial intelligence (AI), machine learning, and automation to generate deeper insight into the health and wellness of consumers. While new solutions might be proliferating in some parts of the hospital or health system, technology gaps could be widening in other areas. Centralized vendor management, which is emerging as a key strategic discipline, could help ensure that such issues are routinely identified and addressed. Members of the C-suite (e.g., chief strategy officer, chief compliance officer, chief operating officer) should oversee the creation of a dedicated team that is tasked with evaluating, shaping, and overseeing their organization’s vendor ecosystem.

Managing the vendor ecosystem typically requires a proactive strategy—and a consistent set of criteria—for evaluating third-party organizations. Ongoing monitoring of existing vendors could help identify strengths, weakness, and potential investment opportunities. Evaluations could also help executives make the case for considering a next-generation company. Along with evaluating vendors, the vendor-ecosystem management team should also be responsible for managing contract obligations and reporting on vendor performance across the organization.

Third-party vendors can be an essential link to technology

Hospitals and health systems tend to rely on third-party vendors for everything—from technology solutions (e.g., electronic health records, enterprise resource planning, customer relationship management);¹ to multiple point-solution technologies (e.g., access credentialing); to digital health (e.g., telehealth platforms, remote patient monitoring). However, as the health care sector moves toward digital technology, machine learning, AI, and other emerging technologies, some incumbent vendors continue to build off decades-old architecture. Legacy systems are sometimes so big—and have been a part of the health system for so long—that it could be difficult to pull the plug. Moreover, emerging technology often isn’t compatible with older systems, and legacy vendors might be unable keep up with smaller and more nimble companies. Classic disruption theory states that incumbents will be challenged by innovators.²

Five components of vendor-ecosystem management

The ability to effectively manage the vendor ecosystem can help maximize synergies and benefits while minimizing business risks. However, optimizing a vendor ecosystem typically involves some tradeoffs. Hospital and health system leaders should consider ways to balance their desire for innovation with their appetite for risk. They should also develop robust risk-mitigation strategies.

We recently had a conversation with the leaders of a large health system. The organization has been working with the same legacy vendor for years. But that vendor is struggling to keep up with the velocity of digital innovation taking place within the health system. The vendor is urging the health system to provide more funding so that it can innovate more aggressively. While the pace of innovation can expose an organization to risk, there are steps that can be taken to mitigate that risk. This team should evaluate existing vendors and determine when (or if) it makes sense to integrate smaller, more tech-savvy vendors with existing vendors.

Consider these components of a high-performing vendor-ecosystem management structure:

• Understand the market: The vendor-ecosystem management team should consider conducting regular scans to understand market trends. This could help identify gaps and determine where more product-development is needed. Market scans could also help identify leading practices inside and outside of the health care sector.
• Assess vendors: The team should conduct regular evaluations of their existing vendors and appraise new vendors that promise improved health solutions. A repository of available vendor solutions could be created and continually updated. This should provide the team with a baseline understanding of the key players in the market and their offerings. The team should also assess potential risks tied to the vendor (e.g., cybersecurity, privacy, financial health, ESG compliance), and risks that could come from organizations that support the vendor.
• Innovate: Hospitals and health systems should consider the bidirectional nature of the vendor relationship and take an active role to help their vendors innovate and evolve. Without innovation, the vendor and the health system could both fall behind their competitors. Do the vendors have a strategic vision for the future? Is the vendor able to continue to innovate, or will the health system need to make investments to ensure continued innovation? Moving beyond the traditional vendor-client relationship—such as by establishing a creative risk- and profit-sharing strategy—could help the vendor innovate.
• Transition: The vendor-ecosystem management team should monitor all existing vendors and evaluate their solutions. Budget planning should be done proactively to determine the likely costs of switching vendors, the willingness to change, and the timing needed to make such a move.
• Manage relationships: The team should manage relationships with vendors, customers, and internal teams. The team should also monitor and report on contractual elements and overall performance, while building connections to foster co-development.

Ongoing advances in technology have created a new frontier for many hospitals and health systems. We have entered a hyper-transformative moment where emerging technologies are having a profound impact on the way organizations operate. Third-party vendors are responsible for more critical functions than ever. To help ensure that technologies don’t become obsolete, the C-suite should consider a proactive approach toward managing the vendor ecosystem. If vendors don’t continue to innovate, it could be difficult for hospitals and health systems to keep pace with their competitors and meet the expectations of their patients.

Acknowledgements: Neal Batra, Harry Han, Steph Meehan

This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.

Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.

Endnotes:

^{1 Structure of the EHR Vendor Market and its Innovation Power, Crossing Borders–Digital Transformation and the US Health Care System, pp. 55-71, 2020} 

^{2 The innovator's dilemma: when new technologies cause great firms to fail. Harvard Business Review Press, 2013}

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