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HIStalk Advisory Panel: Reducing Annual Maintenance Fees for Software

November 7, 2012 Advisory Panel 6 Comments

The HIStalk Advisory Panel is a group of hospital CIOs, hospital CMIOs, practicing physicians, and a few vendor executives who have volunteered to provide their thoughts on topical industry issues. I’ll seek their input every month or so on an important news developments and also ask the non-vendor members about their recent experience with vendors. E-mail me to suggest an issue for their consideration.

If you work for a hospital or practice, you are welcome to join the panel. I am grateful to the HIStalk Advisory Panel members for their help in making HIStalk better.

This month’s question: Are you feeling pressure to reduce your software maintenance fees?

  • Yes. We are talking to our large vendors about reducing or limiting increases. Many have stayed flat, which is helpful. In addition, we are looking at utilization of niche products and determining if we can turn them off.
  • Overall, yes. As we increase products and functionality to meet Meaningful Use, IS is under pressure to control our operating spend. We’re trying to smooth out our maintenance fees by either negotiating fixed fees for a time period, evaluating longer support contracts (when appropriate) to get further reduced pricing, or taking advantage of timing opportunities where both new product licensing and support renewal agreements are all on the table. I have three situations where our support contracts are up for renewal with vendors that have capital projects in consideration for next year. Not surprisingly, they seem to be more malleable in price discussions.
  • Haven’t been asked yet. We’re a revenue department with MU. We’re getting most of what we want right now.
  • I have been asked to assess what applications can go to time and materials vs. annual maintenance. Which is a problem, as most software vendors do not offer T&M for software. In addition, I have negotiated lower maintenance fees.
  • (from a vendor employee) We are being asked by 90 percent of our customers to reduce our software maintenance fees due to increased pressure on their end from administration.
  • All or the management team has been asked to push back on our vendors. We cannot continue to see expenses grow as revenues decline. There is no formula mandated, but we have looked at eliminating contracts that we feel we can get by without, and I have continued to negotiate on maintenance more than ever before. In addition to maintenance, I have looked at the many clinical support services like UpToDate and Micromedex. Utilization of these is high, but so is the price. These subscription vendors also need to stop the skyrocketing increases in their renewals or we will need to move to lower cost providers of clinical content.
  • No particular pressure, but we certainly are looking harder at them to determine if we are getting value for our investment.
  • There will always be pressure and it is our responsibility to maintain or reduce cost run rates for same store application support and maintenance. Cost creep is unacceptable.
  • Yes, though pressure is not coming from our organization, but rather simply as we look to align the value of the solutions — what we’re paying and incremental value we obtain each year as we continue to pay maintenance. Essentially we repurchase the software every five years or so given maintenance dollars, but the most value to the organization came upon initial installation, the "first" time we purchased the solution. Continue to reduce our maintenance amounts through standard term renewals, additional purchases and scope expansions, maintenance holidays on new purchases, etc.
  • Yes, we are feeling pressure to reduce our software maintenance fees. We are handling this in two ways:  consolidating functionality where possible on our large vendor systems if the module they offer satisfies our requirements. Additionally, we are working to take advantage of any discounts offered by the vendors where possible.
  • No pressure thus far.
  • Yes, and we have become quite successful in doing that. I also use a third-party negotiator to help to secure better deals. I’ve actually saved about $2 million on maintenance and equipment purchases since changing my approach and doing this. (That’s over and above our initial discounts.)
  • Not per se. We are replacing our best-of-breed platform with an enterprise vendor and will actually have about a $2M reduction in my operating expense in maintenance. Of course I hope to keep those savings in IT because I need it for other things. We are a ridiculously low 2 percent of the operating budget and most academics are about 3.5 percent.
  • (from a vendor employee) We are not feeling this pressure, but I think that is because we have a pretty satisfied client base and have been able to show the value and return of our service. 
  • Yes. However, the pressure is coming from me rather than outside of IT. I am aware of the organization’s finances, so I’m always looking for ways to positively impact the bottom line. I’m aware that there are duplications of coverage in our applications. I’m also aware that some of our applications are not being used to provide the maximum benefit to the organization, and in some cases, barely at all.  One of my personal goals over the next 18 months is to reduce our costs by identifying and targeting those applications for removal.
  • We are trying to reduce maintenance fees by reducing the number of niche vendors and getting to a core vendor strategy.
  • Between Medicare and Medicaid reductions (about $20M) the pressure on IT was about $2M, so yes, we asked long-time vendor partners for stated fee reductions, which they conceded in return for commitments to act in their behalf with new sales opportunities and existing customers. This is something new. It will be interesting to see how they use us (me and my CEO).
  • A huge initiative for us is application rationalization. We are enforcing selection of standard systems and partner vendors for each functional area to drive out variation and have assessed our portfolio of applications for those we are developing
    active retirement and decommission plans. We are also actively negotiating with existing strategic partner vendors to freeze maintenance increases or actually reduce future maintenance costs – not an easy task with vendors such as McKesson, however we have had some success.
  • This has been a very very big deal for us over the past five years. We are becoming aggressive negotiators (and we are re-negotiating contracts) to ensure we get lower-than-market maintenance fees. I am somewhat suspect that it’s a “zero sum game,” and if we push the balloon at one spot, it will bulge elsewhere. My CFO doesn’t agree. He remains focused on reducing maintenance and support fees independent of the impact it may cause on other costs or relationships.
  • No one on our executive team or board is asking me to cut software maintenance fees, so I’m not necessarily feeling any pressure. I’m taking on that responsibility myself and welcome the chance to squeeze our vendors for price reductions. Having been a vendor, I totally understand the need for vendors to make a decent living and stay financially viable themselves, so I don’t squeeze harshly or unfairly. The reality is, it’s the right thing to do because, speaking from first-hand experience, vendors need to feel the pressure of price reductions or they will never be motivated to be internally efficient or innovative themselves. Also, every dollar overspent on IT is one dollar less that we can pay a nurse, hospice, pharmacist, respiratory tech, or savings passed to patients and employers. I handled this by simply adding up the total cost of ownership for my major software products (including internal costs of labor), shared those details and numbers openly with my vendors, and asked, "What are you going to do to help me reduce these numbers?" If vendors push back, I ask them to "show me your numbers" and be transparent, too. If they still don’t open up the books, I re-compete their contracts. At the end of this process, we will reduce our IT TCO by 25-30 percent over three years without any reductions in service levels, and in some areas, our service levels and capacity will actually improve.
  • The pressure is to develop a long-term support model that delivers increased value and innovation at an affordable cost while continuously improving price/performance. Not just software maintenance — everything we do.
  • We pay outrageous software maintenance fees that seem to escalate regularly for no good reason. However, it’s the CIO currently paying most of the bills, not me, and I’m not hearing about any specific pressure to reduce them (as opposed to just cost-cutting pressure in general).
  • We are under enormous pressure to "get to break-even with Medicare rates." We are looking at cutting back on systems and renegotiating fees with vendors. We have not stopped paying fees.
  • Yes, resisting where we can. So far are cuts have been more on the hardware side, where we’re able to use third parties.
  • We are under pressure to reduce all costs. Software maintenance fees seem to be less emphasized in discussion than the fees for new software modules and features (even when needed for Meaningful Use or for enhancing the workflow and efficiencies for clinicians) and the need for ongoing personnel for production support, which is always under-budgeted. Clinical informatics resources are another group of personnel who are absolutely essential to maintaining a usable software product for a large hospital but they are also underestimated in their value and need for sufficient manpower. [Disclaimer: I am not a member of hospital IT or clinical informatics and am not even paid by our hospital — just a front-line doc and academician.]
  • Yes, we are working on this in addition to our Supply Chain department working non-software expense reduction. Overall, we are working to reduce spend by 5 percent across IT (to the degree possible). We are focused on the elimination of the annual increases in maintenance and hosting fees for next year (generally 3-4 percent average increase across vendors). Back in 2008/2009 we made a pass at maintenance reduction and had some success. With our major contracts, we were not able to reduce existing contractually committed fees, but several big vendors did waive their annual fee increases, which in total saved significantly more than $200K. We are making a pass at doing that again, not sure if we will get it again, but worth trying for. Also, we are extending the refresh life cycle of some our hardware and networking components. Instead of purchasing maintenance on hardware (Kronos time clocks), we are buying replacement hardware and becoming our own depot (estimated $75K savings). We are going off-contract for Microsoft support for some technology and going to time and materials support calls (estimated $100K savings).

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Currently there are "6 comments" on this Article:

  1. I love the hospital CIO that demands price transparency from his vendor, yet his hopsital can’t explain how they came up with a single charge in their billing system, let alone explain a hospital bill.

  2. I certainly hope that all CIOs with McK Hz Clinicals in-house have STOPPED paying their maintenance fees. Afterall, what are you getting for your $$s other than a discontinued product! BTW when negotiating a contract ALWAYS get support and maintenance fees separated in the agreement. For remember, support can be T & M but maintenance fees are what entitles you to upgrades. Vendors like to combine the two (ex. McK), but they need to be separated in the contracts.

  3. Huh? These are just words, and contracts vary widely in how they are structured. The contract should define what each of these (Support & Maintenance) mean, what you are entitled to for the $$ paid and what you would be required to pay extra for. Don’t assume. Make sure it is clearly stated in the contract.

  4. Good discussion, but wrong question! In the 21st century, talking about how to reduce software maintenance fees is like talking about how to solve that pesky problem of wagon wheels digging rights in the horse paths. Rather than paying exorbitant fees to service legacy software systems and their vendors’ efforts to jerryrig legacy systems for Internet access, mandated interoperability, and other requirements of the modern world, health information technology needs to catch up with the rest of the tech world. More thoughts here: http://www.athenahealth.com/blog/2012/10/24/there%E2%80%99s-no-such-thing-as-a-proprietary-cloud/

  5. Some of the worst (for providers) contracts I have seen include 18% maintenance fees with annual escalators. The worst are ones that start upon contract signing or shortly thereafter forcing payments for products that aren’t in use. I for one charge less than $50k yet easily save clients 10-20 times that in annual fee reductions. I’m a former CIO and only realized after that I did not have the time or experience to deal with vendors. Try a small investment in an experienced contracting consultant – maybe with a % of savings as the fees.

  6. The real shocker is that the major manufacturers that engage in hospital storage, networking and infrastructure environments enormous growth and profits come from maintenance, not net new.

    Hospital CIO’s do have power and influence over this, when they have access to real cost data.
    Their IT procurement teams are at a total disadvantage without access to the right data.

    Stuck in operational modes, heads down trying to keep up with demands unlike anything they have ever encountered now with implementation of EHR’s, there is little or no time on their plates.

    This is something I see everyday!

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