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My IDN employer brought in Vince Ciotti and H.I. S. Professionals for consulting work years ago (at my urging) and he did a good job. He’s definitely a free-spirited rogue in a button-down world. Maybe the best testimonial to his skill and outlook is that he did all the IT consulting for The Hunter Group, which may have been occasionally reviled for telling hospital executives hard facts they didn’t really want to hear, but who told them nonetheless.
Vince definitely knows his IT history because he lived it and made it. He’s one of those pioneers who hooked on for a ride as the industry got started in the late 1960s, but here he is still working in it nearly 40 years later. Thanks to Vince for the chat.
You and your fellow H.I.S. Professionals founders left good jobs to strike out on your own. What did it take to make your business successful?
We were all fired. You get into consulting because you lose your job. I was fired outright. Bob Pagnotta got sick and tired of taking companies public and dealing with vendors. Karl Sydor had been with SMS and was sick of apologizing to customers. So, two of us weren’t really happily and gainfully employed and Karl had been out on his own. I can’t see many sane people leaving a good job and striking out on their own.
What’s it like working for yourself instead of someone else?
It’s a blast. I spent 15 years before the mast in various positions with vendors. The first 10 years with SMS were wonderful. It’s like Judy Faulkner when your company is hot and everyone loves you. When you get big and it’s a 1,000 person organization and customers get unhappy, it goes downhill.
I went to McAuto and a little in vendor in Brooklyn. I admire a guy who can spend 20 or 30 years with a vendor. I got sick of it after 15.
If you had to take a job with a vendor, who would you want to work for?
At this stage in life, nobody. I’m 62 years old and I’ve got four more years to bag this stuff. It’s fabulous. I’m standing here in my underwear because it’s hot here in Santa Fe. I usually go out on my motorcycle and the come home and take a nap. I’m usually having a drink by 4:00 or 4:30. When I travel, I have to wear clothes and stay up until 6:00.
I’m going to take two weeks off in a motorhome and go to Yellowstone. I won’t make a dime. I called my clients and told them not to call me. I could do it all year if I wanted to. You eat what you kill.
I love it, but to be candid for your readers, don’t jump into it short-sightedly. Bob Pagnotta was the golden man. He was loved as a vendor in the ’70s like Judy Faulkner is today. When he went out on this consulting binge in 1987, he sent out a one-page letter to 27 CEOs he’d served over the years. He said, “I’m sick of the vendor world. If you need me, it’s $1,000 a day.”
He got six responses from guys who wanted a day a week. He was stuck and I picked up the extra day. The power to go out and get those six responses is rare. Without Bob, I’d have starved the first five or six years of the business.
How has consulting changed over the years?
For the worse. It’s bigger. When I started with SMS in 1969, the big vendor was GE, who sold MediNet. They had 500 or 600 hospitals, maybe $40 or $50 million in total revenue. SMS lost money until 1972 or 1973. Vendors were small. Even McAuto had 100 employees and maybe 10 hospitals.
You knew all the hospitals and employees. Those billion-dollar firms today like Siemens and McKesson and Cerner – it’s frightening. It’s a CEO a year. A total merry-go-round at the VP level. Companies buy and sell products like I buy motorcycles. I yearn for the good old days when you knew everybody and they all knew you.
Sheldon Dorenfest goes back 30 years also. He pegged the size of the industry. Probably the total size in 1970 was $100 million and most of that was hardware. Software was embryonic.
In my era of 1969-70, I was an installer and we were free. Can you imagine that today? They called us implementation directors. SMS didn’t start charging for us until the late 70s. It was a different business then. I think it was nicer, but I’m old and jaded, so maybe young kids have a different perspective.
We used punch cards. You sat at a keyboard and punched cards that were sent over lines one byte at a time. When I saw the first CRT – the IBM 2771, I think it was – green lights on a TV screen, no cardboard, no holes. Blew my mind. Typed on a keyboard and it went down the line.
We just had an SMS reunion in March 2007 in Orlando, 50 of the old farts from SMS in 1969. Told old stories. Of those 50, probably 10 are multi-millionaires. They saved their stock. SMS stock was a penny a share when I started and they weren’t public. They gave you 40 or 50 shares for joining and a few hundred if you did well. I ended up with a few thousand shares worth a penny each.
The company went public in maybe 1975 at $15 a share. I’d been given a couple of thousand. It’s what these executives are working for today. Stock options are staggering. It grew and split several times, but I’d sold every share to buy Porsches and Hondas and missed out on probably $1,000 a share. I blew all mine.
What do you see happening in the next 5-10 years with consulting firms?
The ones that go public will have the toughest time, like FCG and ACS. It’s an earnings per share treadmill. How do you grow 15 or 20% a year and still be honest with your client and tell them not to buy certain systems and not be an alpha site? Clients will get angry and then you can’t sell. It’s a vicious treadmill.
A software vendor can come out with new products, charge for them, and make millions. Consultants are “same old, same old”. Help them pick them and install them. How do you get 15 or 20% except by ripping off your client and selling them stuff they don’t need? For a hundred-million-dollar consulting firm, it’s murder.
What are the biggest mistakes CIOs make when negotiating contracts?
Annnouncing a vendor of choice. That’s the biggest mistake. That effectively says “all concessions are ended”. Stupid, like when you meet someone in a bar and look into her blue eyes and say “Let’s get married”. She won’t get married because she thinks you’re weird. You won’t get a prenuptial agreement. On the other hand, tell her you’re going home to a redhead and she’ll do almost anything.
RFPs are a farce. The vendor that lies the most wins. They’re the vendor of choice. You should have picked two winners and then negotiated between the two.
Imagine if your CEO goes to HIMSS and falls in love and tells a vendor he’s going to buy their product and wants you to negotiate deal. How you gonna get a deal? The CEO should tell you he saw some interesting systems and let you lead the charge. Keep the CEO out of the picture as long as you can.
If you’ve ever been a vendor, the salesman’s credo is to sell as high as you can on the org chart. If you can get to the board, do that, but at least get to the CEO. The nastiest ones would try the CFO, and if he wouldn’t buy, he go to the CEO tell him the CFO’s incompetent. You do the same with the CEO if you have to – go to the board.
It’s not the company as much as the sales exec. There are vicious sharks out there that will do anything to get a deal. Glengarry Glen Ross is a classic picture. Getting a guy fired who’s standing in the way of a deal is minor.
Think of the commission check. We just negotiated an East Coast CPOE and clinicals deal worth $40 million. The going commission rate is probably two percent, maybe three percent for the rep, and he’s just the order-taker. The regional VP is probably $100K. The VP of sales, several thousand more shares and maybe a bonus. You’re looking at six- and seven-figure commissions. What would you not do for that? These aren’t immoral or unusual people. They’re just like you and me, but they have far better focus. They’re looking at their W2 every day. We just look at it at the end of the year.
You have a reputation for being an aggressive contract negotiator. Do you have some good stories on things that happened while knocking heads with a vendor’s negotiator?
I hate to print this. The ultimate is that you tell both finalists they lost and you hang up and wait a couple of weeks. They’ll go to the CEO, CFO, CIO or whomever and give them a deal. I don’t care. I tell my clients if you can get more money, do it.
What does it cost McKesson to ship Paragon to a 150-bed hospital in Arkansas? A $2 DVD and a $20 Fedex. Everything else has been expensed in prior years. Maybe you have to buy lots of dinners. Cerner will spend $100,000 on airline tickets. What does it cost to build a Ford or Chevy? Why should hospitals spend 10, 20, or 40 million dollars for these systems?
Meditech’s profit is around 40%. Cerner and McKesson are public, probably in the teens pretax. Maybe the average vendor is 15% pretax, 7.5% after. What’s the typical hospital’s margin? In New Jersey, it’s negative. They pass the hat every year. Well-run shops like Columbia can eke out five percent. How much do you want to give to those poor people at Epic?
You ask to have negotiating session. In come six guys in suits, of which two or three are lawyers. Shake their hand and, they’ll have a caucus on who’ll shake hands and whether they’ll speak Latin or Greek. A wonderful CFO, Paul Long with Hunter Group, would see those lawyers and say, “I don’t have my lawyers. This meeting is over.”
We tell vendors, “Don’t bring your lawyers. We’re businessmen, and if you can’t explain it to us, we don’t want your systems because it will be normal human beings using it.” They want to choke the meeting to death and hope the hospital gives up and signs. The hospital is paying $300 or $400 an hour and they hope you’ll finally sign. Do 98% of the deal, then have a lawyer look over the clauses. If you can’t read and understand it, it’s a bad contract.
For response time, maybe the vendor has a three-page warranty. Rip it up and write it in one paragraph so that everyone can understand. Other than that, it’s legal gobbledygook. You don’t have lawyers on the nurse stations.
We were doing a very big deal in the Southeast. I got a nasty letter from VP of sales to my home address. I had told the client in front of them about trouble we’d had with that vendor in the past – response time, support, things like that. The letter said I was breaching my confidentiality agreement. I have no such agreement. That’s between them and their client. I took the letter to the hospital and showed them. They immediately chose the other vendor. Sometimes life works out like that and the good guy wins.
What hospital or IDN is the best IT showcase you can think of?
Hopkins in Baltimore. Stephanie Reel walks on water. It’s the most demanding job on Earth. She’s got 10 Nobel prize winners, 1,000 academics, and executives who know as much about IT as she does.
Meridian in New Jersey. Becky Weber, a former SMS installer, is CIO. She can make 20-year-old Invision look hot and blow people away when they come for a site visit. She beats up Siemens, but at the end of the day, she does good demos and gives good references.
Sisters of St. Francis. Bill Laker. He had high costs and unhappy users. We did an assessment and wrote a mean report. We said the users were unhappy and he was spending too much money. He went out, talked to users, and figured out they really were pretty unhappy. He looked at our numbers on staff comparisons. Two years of hard work later, he had turned it around, cut staff, cut costs, and improved satisfaction.
I’ll give you some vendor names and you give me some adjectives that come into your head. McKesson.
Interfarce. That’s a combination of integration and interface.
Stock price. Earnings per share.
Epic costs, with a small E. Very expensive, in other words.
Wonderful. Think reasonable cost. We get great contracts and reasonable service. It’s a pleasant surprise when you look under the covers.
They have the best plan of any IT vendor with Soarian. If they can deliver it, if they can code Soarian.PPT, they’ll own the industry. I don’t know how far they are.
Pleasant surprise. Nice tradition, that old Technicon tradition. A strong ethic of professionalism from Harvey, who did all the hard lifting at SMS. Nice to negotiate with. They try to deliver and don’t lie too much. They probably tell more truth than everyone. Mike Smeraski is golden if you can deal with him.
Past tense. They’re gone. It’s a shame. That makes them the ultimate marketing company – they actually sold themselves.
Fabulous VP in Frank Pecaitis. May be the best-kept secret in the industry. It’s a small hospital’s chance at an affordable system. exciting interfaces with MUMPS and Cache’, but compared to spending 10 or 20 million dollars that vendors want, that free license and reasonable maintenance could be the best-kept secret.
The army. It’s like a cult. If you believe, you’ll be happy. A lot of young kids out of Boston College. Prices have inched up, so it’s not the deal it used to be. The client server we call “lipstick on a pig,” because you still get all the old Magic stuff. Everybody does what they’re told. They don’t negotiate. They’ve got almost a six- to nine-month line. They’re almost too successful. I wish they’d go public. I’d buy that stock.
You watched the industry grow up. Who in it has been most memorable?
There’s so many. So many fabulous people in the business.
I’d have to go back to my old buddy Pagnotta. He’s not that famous and he’s provincial. He lives in the northeast and doesn’t like to fly. He can sell screen doors on a submarine. If he wants you to have a typewriter, you’ll have one tomorrow and he’ll show up with ribbons and paper and make you so happy you’ll tell your neighbor, “You have to have one” and they’ll give up their word processor.
Dozens of characters have been stellar in this industry. The combination of selling, marketing, leadership, charisma, honesty, integrity, and morality – it’s so rare. You realize you have to live with these customers, not just rip everybody off and buy an island and be a hermit.
Early in my career, I was a sales exec like the scumbags I’m running down in this interview. I did it with a company that didn’t deliver the product. We sold stuff and it didn’t get delivered. I moved on another vendor, another vendor, then became a consultant. Three years ago, I went back to that same large multi-hospital IDN where I had sold a non-existent system 25 year before and they had lost all their millions. I started with the executives. The CEO, CMO – it was the people – they hadn’t moved. I had had a nice dark brown beard, but I had shaved it off. They started telling me about those terrible scumbags that sold them the nonexistent system that cost them millions. Sweat started running down my nose, but they didn’t recognize me. That’s the industry. I was a scumbag, and now I’m a consultant hero. We play different roles at different times in our careers.
You’ve been reading HIStalk for a long time. Give me the pitch you’d make to attract new readers and sponsors.
It’s more of the truth than anywhere else. You have the guts to put it in print than the mealy-mouthed magazines. They always edit out the name of the vendor and that destroys the article. You name names and tell the truth – that’s priceless.
Any last words?
Since I’m a consultant, I’ll advise readers to beware of them as well as vendors. Negotiate with them as strongly as with vendors. They’re getting a free ride, sometimes taking more millions than the vendor. Consultants should work for thousands of dollars, not millions, get projects done in months, not years, and work themselves out of a job and not stay forever and suck the place dry. Get your expert advice, thank them, and show them the door. Don’t let them become your partner and run the hospital for the next 10 years.