Medicare no-pay list: Lessons for IT consulting

Effective today, Medicare will stop reimbursing hospitals for certain medical errors, such as using incorrect blood type during transfusions and leaving objects inside a patient during surgery. There are important implications for IT consulting and project failures.

The Washington Post summarizes the health care issue:

Starting today, Medicare will slash hospital payments for medical mistakes resulting in patient harm and higher costs to the sprawling federal health plan for the elderly and disabled.

THE PROJECT FAILURES ANALYSIS

Consider which costs rise most on delayed IT projects:

• Internal labor and overhead: These aren't direct cash expenses, so while delays cause accounting and operational pain, they don't actually raise out of pocket costs.
• Software license fees: In general, implementation delays alone don't increase software license fees, so this is a non-issue in relation to over-budget projects.
• External consulting fees: Consulting is the big enchilada here. Since most large implementations pay hourly consulting fees, these costs rise directly with project length. Delayed projects often cause consulting fees to rise commensurately.

According to Dennis Howlett, who was once partner in a British chartered accounting firm (certified public accountants):

Unless you need to hire additional internal staff resulting from the delay, external consulting fees are the variable costs that will go up.

Translation: Late projects run up external consulting costs.

• Related: Consulting’s dirty little secret and Consultants hate failure

Conflicts of interest arise when consultants gain financially from their own poor practices: the consultants screw up on the project and then bill the client to fix their own mistakes. Following Medicare's lead, I suggest making your consultants pay for their own mistakes; don't let them pass their costs to you.

At the same time, be thoughtful in applying this suggestion. After all, when a project runs over-budget, it can be hard to clearly determine fault; most often, both customer and consulting vendor share blame. I'm definitely not suggesting using consulting companies as a scapegoat for your own organization's shortcomings.

Some naysayers may wrongly think these ideas are unworkable because IT projects are complex. To answer that point, peek at the official Medicare program rulebook and its 2140 pages of gibberish-style pain. Good luck reading it unless you're a medical economist. No, your project isn't that complicated.

Be fair when dealing with consultants, but also make sure they're fair to you. Sometimes we can learn from the government.

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