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Upcoming Challenges and Opportunities in Healthcare Outsourcing

Thanks to the American Recovery and Reinvestment Act (ARRA) (the economic stimulus package for the U.S. economy), healthcare reform, and the Health Information Technology for Economic and Clinical Health Act (HITECH), the next five years will see a dramatic increase in outsourcing in the healthcare industry. But there are significant challenges for decision makers beyond understanding how to take advantage of the billions of dollars in government funding.

We spoke with Will Saunders, COO, ACS Government Healthcare Solutions Group, about the impact to states regarding changes in Medicaid processes. We also spoke with Dr. Harry Greenspun, Chief Medical Officer for Dell Perot Systems, regarding the impact of new technology and process requirements to hospitals and physicians, managing data securely, delivering services from the cloud, and criteria for meeting medical practitioner’s specific needs and preferences. Both also discussed the upcoming new complexities around selecting outsourcing service providers.

The need to reduce medical practitioners’ operational risks

Lack of in-house expertise. The majority of hospitals and physician groups until now were not forced to operate mission-critical systems and sophisticated applications that must be always on, backed up, and comply with stringent newly strengthened privacy and security regulations. “There is an increasing realization of the risk of hospitals and physicians trying to manage these complexities themselves in their own data centers. In a physician office, the ‘data center’ may even be a closet. To install, maintain, provide ongoing support, and protect technology is beyond the ability of the typical practice of medicine,” says Dr. Greenspun. In addition, some physicians still resist even moving to a digital environment.

Need for accelerated pace of technology implementation. Now they’re faced with catalysts that will move them to outsourcing — the ARRA stimulus package, and the opportunity through virtualization and cloud-delivered services to reduce their costs and reduce the complexities of implementing and supporting technology.

Greenspun says the progression toward outsourced solutions in the next five years will be dramatic. Currently, fewer than 20 percent of physicians have electronic health records (EHRs); the U.S. government wants that number to move to 90 percent adoption by physicians and 60 percent by larger health systems and hospitals — and wants the increase to “move in a pretty steep fashion.” Down-market adoption by smaller hospitals and physician groups will also expand.

Patient safety issues. Dell Perot Systems’s CMO points out that the average hospital today runs probably 300 different applications, not integrated, and all from a variety of vendors. But it’s more than a very complex environment. There are critical safety issues, such as the system that controls the blood bank or the operating room management system going down.

“The risks from technology problems are high and potentially life threatening, which makes it even more crucial that buyers get on board with an outsourcing partner with critical healthcare experience,” says Greenspun.

In addition to risk reduction, healthcare providers will look for outsourcing partners with solutions that (a) make it easy to access and support technology and (b) provide vendor neutrality.

Ease in using the solution. As Greenspun points out, leading outsourcing providers can deliver a computer with a virtual desktop. It’s a plug-and-play solution where medical practitioners simply turn on the computer and have access to all the applications they need but don’t have to worry about implementation or ongoing support of the technologies. And with virtualized services storing data rather than having it reside on the computer, it eliminates the possibility of security breaches from a lost or stolen computer.

Vendor neutrality. There are dramatic differences in the business needs and preferences of various hospitals and physician groups. “You’ll find a medical practice that loves one application and hates another; but you can walk down the street and find the complete reverse at a comparable practice,” states Greenspun. That’s a reality that outsourcing partners need to address by providing a broad range of applications and integrating them with medical health systems, public health groups, and Health Information Exchanges (HIEs) in a way that satisfies the needs of a healthcare client.

The reality is that cloud-delivered services address all of the above concerns and specific needs of healthcare buyers looking for solutions. “We can implement, integrate, and support applications in the cloud and enable data to flow freely and securely among them,” says Greenspun.

Security of healthcare data in cloud-delivered services

Admittedly, many medical practitioners today are wary of the risks surrounding security of their data in a cloud solution. But Dr. Greenspun points out that maintaining data in an outsourcing provider’s secure data center assures a higher degree of technological security, physical security, and disaster recovery than a hospital, health system, or physician group could manage on its own. An outsourcer’s secure data center in the cloud is a more secure solution.

He also draws attention to the fact that data security challenges will be significant on an ongoing basis. “Healthcare reform and the push for increased public reporting will require larger and larger amounts of data-sharing and public reporting of results, along with bundled payments and extensive care coordination. The demands on data flow — and the regulations governing data security — are going to increase every year,” says Greenspun.

To ensure data privacy and security while increasing the kinds of data flow, hospitals and physician groups will need outsourcing partners that understand all the workings of healthcare, including the provider, payer, government perspectives, and public health organizations such as the CDC, NIH, and FDA.

Greenspun cautions healthcare buyers about companies that offer to move the buyer’s application and information to the public cloud. Although the healthcare industry is among the first to acquire capabilities for delivering services from the cloud, not all healthcare outsourcers are equal. His advice: “Make sure the outsourcing provider is active enough in the workings of health systems, emergency departments, healthcare agencies, and public health groups, and is thoroughly immersed in healthcare legislation so the partner will be prepared for the dramatic data security changes over the next decade.”

How outsourcing will impact upcoming changes in Medicaid administration

Unlike the healthcare provider side, where adoption of outsourcing has been slow, the payers — especially in the Medicare and Medicaid arena — are already reliant on outsourcing for their operations. Even so, the picture is about to change for Medicaid administration processes.

One of the prime tenets of U.S. healthcare reform is the expansion of Medicaid to approximately 15 million Americans. In addition, Saunders at ACS points out that “the Obama Administration has decided to use Medicaid not just as a platform to decrease the number of uninsured but also as a platform for health information technology.”

Both the ARRA and HITECH call for each state to build a Health Information Exchange (HIE) and facilitate provision of billions of dollars to healthcare providers for adopting the technology and to companies administering these systems. The acts stipulate specific requirements around “meaningful use” of the systems, and Saunders believes outsourcing providers with deep expertise in Medicaid functions will be in a position to provide the analytics and determine meaningful use.

He explains that government healthcare programs will also focus on contracting with service providers with proven solutions to control spend and increase the quality of healthcare. “With healthcare costs increasing from every perspective these days, states will be looking for innovative solutions to manage healthcare in a more effective way,” states Saunders. He also expects the federal and state governments to be “much more stringent” in the requirements and service level agreements of commercial health plans. This is already causing an increase in the number of managed-care entities seeking outsourcing providers that can “help them be more competitive and yet reposition their solutions to something that the government understands and appreciates.”

Healthcare providers are quick to point out that the government currently doesn’t pay them very well to treat Medicaid patients. Saunders believes the contemplated expansion of Medicaid under health reform to up to 15 million more eligible individuals will cause the government to examine programs with even more scrutiny from a budget perspective. “It’s clear that, because of the increased number of eligibles, states will have to manage utilization and spend like they never have before,” says the ACS executive.

Advice in selecting service providers

Medicaid complexities. With the increase of 15 million potential Medicaid beneficiaries, the pie of opportunities for companies that provide Medicaid administration solutions expands. This is already a catalyst for new supplier entrants in the market — suppliers with new and emerging technologies that the government encourages. However, Saunders warns states to bear in mind that “Medicaid is its own animal and is very different from commercial health plans.”

“States are already struggling with the question of whether to go with a traditional Medicaid vendor or take a chance on a vendor that’s new to the market,” he continues. States increasingly will need to rely on vendors that have deep experience in understanding Medicaid yet also have the capabilities from a health information technology standpoint.”

His advice for buyers — the states — is to “be very careful about vendors making claims that they can operate in the Medicaid world because they are successful in the commercial world. Make sure the vendor has operated in the Medicaid market, understands the unique demands of the Medicaid population and its provider network, and understands the requirements.” He points out that, over the past decades, many vendors exited the Medicaid space because of its complexities, and the challenges with an increased population of 15 million eligibles and an increased focus on spend management will only exacerbate the complexities.

Supply/demand and the Y2K phenomenon in healthcare. Dr. Greenspun agrees there will be players entering the healthcare space that lack an understanding of the specific requirements for privacy, security, workflow, and technology.

However, he warns of an even bigger problem. “Stampede may be a bit of a strong word, but I expect there will certainly be a rush to get up and running with a technology partner,” he states. “There’s an open question as to the capacity of the outsourcing industry with healthcare-specific experience and whether the supply can deal with the upcoming demand.”

He compares the potential scenario to what happened with Y2K, where some companies waited too long to get their systems compliant and, when they sought a partner to help, they were faced with people who claimed to have the experience but really didn’t. “I think we are likely to see some pretty spectacular failures as a result of hospitals and physicians not finding a qualified partner early on,” says Greenspun.

Ongoing support and training. The doctor mentions a new provider selection criterion, based on the accelerated pace of technology development that will impact the healthcare space over the next five years. “Given the rise of adoption, many providers’ capacity for consulting and for ongoing training and support will not scale adequately.” Buyers will need to select service providers that can address a much broader market quickly. That’s a key aspect of Dell’s recent acquisition of Perot Systems. Dell Perot Systems can now provide mass customized solutions right out of the box and provide corresponding support that scales.

Advisory services. As with service providers, there is a wide difference in the capabilities and knowledge of outsourcing advisors with healthcare expertise. And there’s a new twist: The U.S. government is establishing a new program with non-profit Regional Extension Centers to help physician practices and hospitals with issues such as provider selection, workflow, etc.

However, these 70 centers may lack deep expertise in how outsourcing works, so buyers need to ask questions about an extension center’s experience with workflow reengineering, technology training, and outsourcing track record. Some service providers are currently teaming up with the Regional Extension Centers to help them understand the best way to run the centers.

Dr. Greenspun points out that buyers need to be careful about the advice they receive. “Be sure the advice comes from people who understand your unique practice and your specific needs.”

Opportunity for transformation

The catalysts now forcing change in healthcare use of technology and outsourcing solutions are really an opportunity in the next five years for healthcare providers to revisit everything they do — from practice management, billing, laboratory and emergency management to pharmacy apps. By taking a wholesale look and changing their entire computing environment, healthcare providers will now be able to dramatically transform the way they deliver care to patients and their families.

Lessons from the Outsourcing Journal:

  • Because of U.S. healthcare reform, the ARRA stimulus package, and government technology mandates, the progression of hospitals and physician groups toward using outsourced solutions in the next five years will be dramatic.
  • Buyers should select outsourcing partners that can deliver plug-and-play virtual or cloud solutions that also address critical patient safety issues, ensure compliance with data security and privacy regulations, and provide a vendor-neutral set of applications.
  • Because the opportunities for outsourced services will increase due to the economic stimulus and the addition of millions of people eligible for Medicaid benefits, the next five years will bring an influx of new suppliers entering the market. However, hospitals, physicians, and states must be careful to ensure they select outsourcing partners with deep experience in the requisite healthcare services rather than focusing primarily on new technologies. Not choosing a qualified outsourcing partner can result in a spectacular failure.


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