Why do health systems exhibit this behavior?

• Focus on solving discrete business problems: The industry lacks consensus on which functionalities are critical for health systems to prioritize and how systems should prioritize them. As such, health systems use a checklist approach to find the right vendors to fill current or anticipated function gaps. Some systems maintain lists of 30 to 50 functions they want to develop and go through them one-by-one to find vendors to fill each gap or a few gaps at a time. This approach can be useful in sorting out noise, but it comes with risks.

What are its potential consequences?

• Over time, a partnership logjam can form, adding complexity and redundancy to health systems’ portfolio.
• Vendors may feel deprioritized by these health systems in the near term as they juggle their many partnerships. In the worst cases, the health system may hire a cost-control consultant that terminates as many vendor contracts as possible to reduce overhead and cause the system to essentially start over.

Why do health systems exhibit this behavior?

• Focus on solving discrete business problems: The RFP process in health care is familiar and well-tested for purchasing medical equipment, hospital beds, or EMRs/EHRs. While RFPs can help narrow down partnership options, they can also lack the flexibility that enables systems to purchase rapidly evolving technologies like telehealth and AI. One vendor interviewee put it succinctly: “RFPs are widget-oriented, not vision-oriented.”

What are its potential consequences?

• Most health systems will continue using the RFP as their evaluation tool of choice, despite its drawbacks in a SaaS era. This may result in health systems overlooking vendors with a more vision-oriented value proposition.
• Vendors whose partnership strategy focuses on longer-term relationships should suggest an alternative framework for evaluating their product that focuses both on immediate functionality and ROI, and on long-term vision and alignment.

Why do health systems exhibit this behavior?

• Focus on solving discrete business problems: Most health systems do not have a centralized innovation budget or SaaS tool governance, despite those being critical for scaling solutions to the entire enterprise. Health systems more often delegate spending oversight to individual departments or service lines, allowing them to pursue targeted solutions that solve their own local and discrete problems.

What are its potential consequences?

• Without oversight, this decentralization can lead to a patchwork of partnerships across the health system where each technology operates below its potential scale. This also locks the health system into a perpetual state of up-selling.
• Vendors may have to settle for selling to a small part of the system (e.g., one hospital in a multi-hospital system) as a point solution. They then will have to work for months or years to get past the “shadow” IT departments that each disparate unit or service line has in order to achieve enterprise status.

Why do health systems exhibit this behavior?

• Minimizing risks and consequences of potential failure: Five-year failure rates for startup companies are about 45%—a health system may want to wait for the vendor market to consolidate and partner with vendors that have broader product offerings later. Further, a common worry among health systems is that they will partner with a vendor that will become a future competitor or sell their shared intellectual property to a competitor.

What are its potential consequences?

• The health system may “fall behind” the rest of the market, though some may see that as a preferable alternative to outright partnership failure.

Why do health systems exhibit this behavior?

• Fear of missing out (FOMO): Leaders of health systems can experience FOMO. For example, systems may get an AI chat bot platform because a nearby system got one, despite not having a clear use case for it. This pressure is compounded when board members and investors urge leaders to purchase the latest technology they just heard about.

What are its potential consequences?

• Purchasing solutions out of FOMO will lead to a mismatch between what the health system thinks it is purchasing and what that technology actually solves. This wastes the vendor’s and the system’s time and money.
• Purchasing this way can also lead to power dynamic issues that add tension to a partnership and make the health system harder to work with if health system leaders become cynical towards the vendor’s product.

Why do health systems exhibit this behavior?

• FOMO: For any tool or problem, a health system’s IT teams, clinical teams, strategy teams, and patients will usually have different definitions of success. Few systems incorporate all of this feedback into their purchasing/partnership decisions because doing so is slow, difficult, and sometimes political. But it is imperative systems prioritize this, as stakeholders understanding the barriers and use cases early in the process is better than if they disrupt implementation close to go-live date.

What are its potential consequences?

• If internal feedback isn’t unearthed early in the contracting phase on the health system side, any of these parties can upend the implementation—a nightmare for any vendor.
• There is added importance to getting buy-in from three groups on the health system side—finance, IT, and clinicians.

Why do health systems exhibit this behavior?

• FOMO: Health systems experiencing FOMO are in a rush and may prefer short contracts on an accelerated time frame. However, a longer contract tends to give a partnership more chances of achieving ROI or expected outcomes.
• This is especially true if the tool is augmenting care delivery or the patient experience, as communicating to patients that their care will be delivered differently takes time and convincing.

What are its potential consequences?

• Too short a contract will guarantee that the system becomes underwhelmed with what the partnership achieves.
• For vendors, this may increase the likelihood that health systems do not renew their contracts.

Vendor success hinges in part on health system power dynamics. Finding those loci of power and visibility is key for a vendor to achieve enterprise-level scale, but the health system will rarely identify the ideal sponsors themselves—partnership sponsors are usually chosen because they have bandwidth or suggested the partnership, not because they are the ideal candidate. There are usually only a handful of leaders within a health system that understand all the relevant workflows, how they connect, and the change management barriers that may arise across them for any tech vendor partnership. That places a high burden on the vendor to find that individual and tap them as a conduit for implementation progress and overcoming bureaucratic hurdles.

Despite health system demand for vendors that can solve multiple problems, vendors tend to have a “go it alone” attitude. Vendors can become better partners by figuring out which other vendors have complementary offerings to their products and working with those vendors to jointly serve the health system. They can do even better by aligning on vision with those vendors and selling that “integrated vision” to the system upfront. We heard in interviews that health systems lack the time and energy to fully understand what vendor combinations make sense and explore the contractual elements of such a partnership, so it is up to the vendor to do the busy work and invite that idea to the health system.

Selling to everyone increases the chances that there will be more pain after the sale—poor renewal rates or having to invest in product support teams to handhold your partners. This is a direct threat to achieving scale and margin targets. Be wary of those health systems making emotional or FOMO-based purchases as they will become the hardest partners to keep happy.

There are scenarios where health system-vendor partnerships are “too successful.” The partnership co-develops a product that over time becomes so tied to the health system’s unique needs that the vendor is unable to sell or scale the product to other customers. Vendors may then have to sunset the product, forcing the health system to spend time and resources re-partnering or re-creating the tool themselves. Because of vendors’ laser focus on growth, it’s easy for them to become “sources of yes,” bending over backwards to please the health system. This too often proves unsustainable.