Startup HMO Quickly Makes Its Mark | Article


When the principals at Sacramento, California-based Western Health Advantage decided to start up a health maintenance organization back in early 1997, it had a handful of employees: a CEO, COO, CFO, chief medical officer and a secretary. It also had a desire to get into the health care marketplace as quickly as possible. To accomplish that, the owners had to focus on building their provider network, developing and expanding new products and providing excellent service for its clients. So the company outsourced its back office operations to an ASP and administrative outsourcer named Synertech.

Due to Synertech’s handling of all their administrative operations, Western Health Advantage (WHA) is now a burgeoning full-service, not-for-profit health care plan that serves several counties in California. It offers a variety of health care products and services to meet the needs of patients and employers. Owned by three regional hospital systems, WHA’s goal is to compete with the large HMOs and bring more members into their own system. In just three years, WHA has grown to 50,000 members, 34,000 of which are commercial. Growth is estimated at about 500 members a month. WHA offers 600 primary care providers and over 1,000 specialty care providers.

Rita Ruecker, chief financial officer at WHA, says outsourcing administrative functions to Synertech was a logical solution to achieving a fast startup. “Our three owner-providers decided they wanted to start their own HMO to compete with the big guys. Starting an HMO is a big deal. There’s a whole lot of stuff to do, like starting up any company, and so we felt it best at that time to outsource our operations,” she says. “There’s no way we could have staffed up, hired and been ready to take the product to market when we did.”

High Speed, Low Cost Advantage

The management of WHA wanted to quickly set up their provider network and enroll members in three to four months time. But that wouldn’t be possible if they had to create an entire infrastructure for daily operations as well. Speed wasn’t the only issue. Cost was a huge factor, especially with WHA being a not-for-profit HMO. However, being able to utilize Synertech’s preexisting and well-developed infrastructure, as well as its economies of scale, allowed WHA to keep costs at more than acceptable levels. “Our administrative cost runs about 14 percent, and that includes the money that we pay to Synertech to perform our operations,” says Ruecker. That’s comparable to the Big Blues (nonprofits) of the world and is much better than the 20 percent to 30 percent average of the for-profit organizations.

Synertech is an application service provider and administrative outsourcer to the health care industry. It supports a multi-million-membership base through its applications hosting and system administrative outsourcing to customers that do business in the commercial, Medicaid and Medicare markets. Synertech’s in-house system has responsibility for WHA’s back office operations, including enrollment, premium billing, broker payments and supplies revenue and member reports.

Taking the Worry Out of Operations

In a strict sense, outsourcing is the transference of important but “non-core” business processes or functions to a supplier. Control of the business process is not lost but the method by which the process is operated is totally owned by the supplier. The outsourcing supplier — typically referred to as the outsourcer — not only provides expertise in the function they are taking over from the buyer but can also utilize economies of scale not available to the buyer. This arrangement allows the buyer to direct its focus on core issues that directly relate to business growth as well as, in many cases, enjoy an overall cost savings.

Once it decided that outsourcing its operations was the best course of action, the company wasted no time. After evaluating supplier responses in its request for proposal (RFP), WHA decided to enlist an ASP — Synertech — as its administrative outsourcer. They paid an implementation fee and, over a three to four month period, worked with Synertech to set up the system. “Our first commercial member was in August of ’97,” Ruecker recalls, “and everything went very smoothly. We didn’t have to worry about [operations]. We could focus on WHA business startup issues while we had Synertech handle all the operations part.”

Partners in Success

Though the coupling of WHA and Synertech seems like a match made in heaven, particular care must be taken in constructing a successful and mutually satisfying outsourcing relationship. Tom Hayes, Synertech’s director of customer support, explains how they fulfill their role as an outsourcer by saying that “as an outsourcer, we like to think more as a partner and enabler, that we want to work with [WHA] and sell solutions that will get them to fill their vision and strategic plans.”

Part of WHA’s strategy was to avoid investing in and building on state-of-the-art IT infrastructure, applications and staff. As the health care industry is facing dynamic changes in today’s marketplace, another WHA objective was to gain a competitive advantage without the high costs normally necessary to accomplish this. Synertech’s solutions enable WHA to achieve success in a world of rapidly changing technology and shifting market forces. WHA selected a supplier that is willing to be flexible in meeting the inevitable changes in the growing HMO’s future needs.

Rita Ruecker sums up WHA’s partnership with Synertech best when she says, ” There’s no way we could have put together the staff with the expertise needed to start up a health plan in the time needed to do it. So we felt like [in] outsourcing, we got everything. All the expertise, everything, all at once.”

Lessons from the Outsourcing Primer:

  • Outsourcing is a particularly effective strategy for a startup company because it decreases time to market and start-up costs.
  • For a non-profit organization, outsourcing back office functions provides a much-needed solution for the reduction of ongoing administrative costs.
  • In an increasingly competitive industry, such as health care, outsourcing helps organizations achieve their cost-cutting objectives while increasing the quality of service to their customers.

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