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Outsourcing to Rid Healthcare’s Pain

“Outsourcing has become increasingly accepted in healthcare,” says Mark King, president and COO, ACS, a Dallas, Texas-based service provider. He reports ACS enjoyed significant business growth during 2002, especially with ITO in hospitals. “They’re finally believing the things we’ve been saying,” he reports.

Managing director Scott Bushnell, who specializes in healthcare at Everest Group, says Everest is definitely involved in significant consulting among leading hospitals moving toward non-IT opportunities in outsourcing (such as clinical transformation) and BPO functions (like food services, patient accounting, emergency room services, HR and environmental services). Bushnell says an influencing factor is hospital executives hearing of others’ highly successful business transformational outsourcing initiatives.

But it’s more than word of mouth. What’s really driving the increase in healthcare outsourcing? Three primary trends during 2002 indicate the mind shift.

On the Critical List

Healthcare’s provider sector is opening its minds to the possibilities of business transformation through BPO. Rather than just focusing on the bottom line, they’re realizing that savings from reduced operating costs can be redirected to investments in improving patient care quality, medical facilities or equipment and salaries.

Healthcare industry buyers are now looking at an outsourcer’s value-add capabilities. Ed Hartzell, CEO of Antares Management Solutions, a business process and IT outsourcing provider, agrees this was the biggest change his company noted in buyer behavior during 2002. “Clients don’t want us to just duplicate for less money what they were doing before. They’re considering things like, ‘What advantage will that give us for the future?’ or ‘What else could the outsourcer bring to the table?'” This is a key factor in BPO, where the buyer is looking to the outsourcer’s expertise and resources to change things. “They no longer want an outsourcer to just process claim forms,” Hartzell says. Existing healthcare clients outsourcing IT or a back-office process to Antares are now saying, “You have all this data. Show us how that data can help us improve our business. They look to us as more of a business partner.”

“BPO is getting a lot of air play on Wall Street,” agrees King at ACS. “The biggest thing we predict will happen in the healthcare arena during 2003 is an expansion of BPO services. Those who are already outsourcing finance and accounting or HR, for instance, will consider other BPO offerings.”

Physician practices are also taking note of what’s possible to achieve through outsourcing. Gary Janko, president and CEO of Access Partners, Inc., reports that physicians are starting to pay more attention to the throughput in their billing processes. “If you are a small physician practice and you have a person doing the billing for you, and they quit on short notice, you’re in trouble. Whereas, if it’s outsourced, we have people in reserve or people who can work overtime, and the physician’s billing is not affected.”

He adds that it’s still very much a cottage industry with not a lot of large practices. Scalability is, therefore, a problem, as is IT infrastructure space. Doctors are now looking at the difference of using 400 square feet for a billing office, as opposed to outsourcing the billing function to increase throughput and lower costs – at the same time, using those square feet for revenue-producing activities.

The Technology Capsule

According to Paul Ruflin, president of Eclipsys Technology Corporation, the present focus on value issues around transforming an enterprise has led to a growing trend to bundle software with outsourcing. “Most of the transformational outsourcing activity we’re seeing right now is around bundling,” he claims. “And I personally believe a significant portion of healthcare outsourcing in 2003 will go to providers that can cost-effectively bundle applications and outsourcing together to transform the organization.”

Although this industry doesn’t have a history, to date, of getting a lot of value out of enterprise-wide systems, he predicts this is a significant growth area for the next few years. Ruflin believes the technology emerging in the healthcare arena is “better than it’s ever been, as far as creating significant value for healthcare provider organizations. Integrated applications are being designed around workflow issues that help with productivity of both clinical and financial processes.”

But there are also more demands or expectations being put on the industry regarding patient safety and quality. This pressure has led to a trend of healthcare decision-makers thinking more strategically about their IT investments. Because this is now under the microscope of so many outside parties, Ruflin says decision-makers are thinking, “How am I going to make sure I have the right technology, the right system for a particular application, the right talent and that I have the competency to make sure this really produces value for my institution?”

Antares’ CEO Hartzell reports there’s a lot going on in the healthcare arena around Web-enabled products and services to improve healthcare’s day-to-day business. Even with the current demand, he believes we’re still “at the tip of the iceberg as far as what could be done in this area.”

Although there’s a lot of new technology coming into the healthcare space, it’s still considered an old technology industry, lacking people with new technology skills. Medical practices, in particular, are finding it difficult to hire the requisite number of skilled people, and it’s expensive to retain them. The risks inherent in changing software are significant. This is a tremendous challenge for people focused on providing healthcare who don’t have expertise in dealing with the fast-changing technology. Outsourcing provides that skills “shot in the arm” to maintain a stable work environment among ever-increasing changes.

Future Benefits Hiding Behind HIPAA

In the middle of all this is HIPAA (the Healthcare Insurance Portability and Accountability Act of 1996). A wild card for outsourcing during 2002, HIPAA compliance initiatives are sure bets for IT budgets in 2003 because the privacy rule goes into effect in April 2003 and the security rule is scheduled to be released by December 27. Currently, it appears that some of the large payers are into early testing phases. But most are still behind the curve, and hundreds of smaller payers, as well as hospitals and medical practices, are still at the starting line. Outsourcers report a surge of business regarding HIPAA compliance in the last two months of 2002.

HIPAA involves more than IT solutions to eliminate the Tower of Babel in transactions among providers, payers and Medicare/Medicaid. It also mandates security awareness training/tracking and even a method whereby patients or employees can report security or privacy breaches within an organization. Rick Shaw, President of CorpNetSecurity (which provides the industry-leading solution for security/privacy awareness training), says “people now realize they just don’t have the time, money or people resources to take care of these training issues.” Through a new outsourced capability, his company also now offers anonymity for HIPAA’s requirement for a way to report failures of security/privacy policies to work.

But the bigger issue, Shaw thinks, is what will happen in March and April when the media focuses on the fact that patients now have consumer rights. “There will be a tidal wave of people knowing they can go in and ask to see and change their health records and have the right to sue if their privacy is violated,” he says. Patients will ask, “What are you doing about my privacy?” He believes healthcare organizations will start very soon to promote their privacy initiatives as a competitive differentiator.”

Innovations will follow on the heels of HIPAA. Outsourcing, in its infancy four decades ago, started on a principle of standardization and then broadened to innovative customized solutions that improve the way business works. “I think in the next couple of years, we’ll see some very innovative products driven by the healthcare marketplace,” comments Hartzell at Antares. “HIPAA will help that happen because it will start to standardize some processes.”

Getting Back on Their Feet

Although healthcare industry analysts agree there is a significant growing awareness of the need to outsource in order to achieve business objectives, there’s still some reluctance.

“They’re now aware it’s something they have to do,” says Antares’ CEO. “But medical delivery is still their biggest priority — and rightfully so. The industry hasn’t done enough research into what can be done and what capabilities are out there simply because they put their emphasis on having things like the latest brain scan equipment or the best heart surgeons.” Even among the reluctance and low level of awareness, he still predicts significant growth in this arena in the next two to five years because “there is an absolute driving need.”

Access Partners’ Janko describes the awareness level and need being impacted by changes throughout the entire healthcare system. “It’s like being in a vice,” he explains. “If you take your finger and put it in a vice and give it one turn, it doesn’t mean much. But if you turn it a second time, you’ll feel more pressure. If you turn it two more times, it is really going to hurt. We’re at the point in the healthcare system where that dial on the vice has been turned to the point where people are really starting to feel pain in terms of levels of frustration regarding changing requirements.”

The painful condition is not inoperable. And outsourcing is becoming the accepted restorative.

Healthcare Outsourcing Trends for 2003:

  • Healthcare’s provider sector is demonstrating greater interest in understanding how outsourcing can transform business. They’re also interested in moving savings from lowered costs into acquisition of medical equipment and processes that improve patient care quality and make medical jobs more efficient.
  • HIPAA compliance will be a hot market in 2003, both in IT and BPO training initiatives. Healthcare providers will begin using security/privacy initiatives as competitive differentiators for consumers. More importantly, HIPAA will begin to standardize healthcare business processes, thus paving the way for innovative IT solutions.
  • Because of demands for patient safety and quality, healthcare decision-makers are thinking more strategically about their IT investments and how to ensure IT produces value for the organization.
  • There is a growing trend to bundle software into enterprise-wise solutions for business transformation. We’re currently at the tip of the iceberg.

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