“In the past outsourcing was an ugly word. Today there is a demand for strategic outsourcing in the health care industry,” notes Barbara Russo, vice president of marketing and business development for Synertech, a Harrisburg, Pennsylvania vendor. Synertech is a business service provider (BSP), an applications service provider (ASP) that also offers business process outsourcing (BPO). Synertech’s customers are health payer organizations: health plans and insurance companies.
Russo says many health plans decided to outsource when they realized they couldn’t hire enough employees with the IT skills needed to manage today’s hardware and software.
Outsourcing has created a new responsiblity in the buyer’s organization: managing the company’s multiple outsourcing relationships. This manager’s job includes policing the service level agreements (SLA) from all the vendors to ensure they are performing as promised.
On the supplier side, cooperation is replacing competition. Russo reports vendors are “finding opportunities to unite to create new packages.” She cleverly calls these alliances “co-op-a-tition.” These partnerships are serving as the crucible for industry innovation.
Russo says software vendors are transitioning into ASPs. The revenue model is changing from licensing to renting. “This is a huge cultural shift,” says Russo.
ASPs have purchased many of the leading software companies in the health care industry. Synertech, for example, was formed to administer outsourcing data centers for Keystone Health Plans, the original health maintenance organizations in Pennsylvania formed by Blue Cross and Blue Shield in 1982. In 1997 it acquired Health Systems Solutions Inc. to own its core application. A year later it entered into an alliance with QCSI so it could offer the QMACS application to its customers.
ASPs Become BSPs
The migration from software to service continues as ASPs become BSPs. End users’ demands are fueling this change. Health care plan members are Internet savvy. They are looking for Web-based self-service applications. The BSPs are complying with new services to answer those needs, continues Russo. “There is a huge explosion of niche, Web-based products including those with small add-on capabilities,” says the Synertech executive.
This year Russo expects vendors will actually deploy their new Internet products. “There will be real utilization,” she predicts.
Lessons from the Outsourcing Primer:
- Outsourcing is now widely accepted in the health care field.
- Buyers must assign an executive to manage their various outsourcing relationships and monitor the SLAs.
- Vendors are combining forces to devise new products for the Internet.
- Software vendors are becoming ASPs; their revenue model is shifting from licensing to renting.