Can Outsourcing Inject Health into Healthcare Industry?

Facing extreme pressure to reduce costs and improve service quality and breadth, healthcare organizations, especially those in the United States, are increasingly looking at alternative service delivery models like information technology and business process outsourcing, to improve both the efficiency and effectiveness of their back-office and support operations. A just-released EquaTerra Perspective paper, "Emerging Outsourcing Trends in the Healthcare Industry," examines market challenges the healthcare industry - primarily in the payer, e.g. insurer, segment - is facing, and the demand level for outsourced processes that will help them alleviate some of the pressures.

EquaTerra estimates that, globally, 75 IT outsourcing (ITO) and business process outsourcing (BPO) deals with total contract value of greater than $50 million were signed from 2004 through 2007. This represents a very small percentage of the total number of outsourcing deals, highlighting the relative immaturity of the healthcare outsourcing market compared to other industries such as banking, financial services and manufacturing. However, the healthcare outsourcing market is expected to grow at close to 10 percent over the next five to seven years, faster than the overall market growth of seven to eight percent.

Said Mark Voytek, EquaTerra's Healthcare Industry Lead and co-author of this paper, "Healthcare organizations that have not recently done so should update and reassess their strategy and action plan for use of alternative service delivery models for both back-office and core operating functions and processes. If successfully executed, outsourcing can play a positive and growing role in helping them address the serious challenges they are facing today. And while they should use caution when exploring and assessing emerging BPO areas, the market is expanding and rapidly maturing, and what was premature in the past could be ready for prime time today."

Challenges Facing Healthcare Payer Industry

Current challenges the healthcare payer segment is facing include:

* Merger, acquisition and divestiture activity has increased demands on technical and support infrastructures, further driving the need for change
* Many of the larger payers have remained with legacy hardware and proprietary or internally developed applications which no longer meets their needs
* The growing complexity of offerings, as well as government and regulatory changes, have increased delivery and support requirements
* Confidentiality and privacy issues around personal health data has caused an increase in expenses associated with the delivery of services

Healthcare Payer Demand for Outsourced Functions and Processes

Based on a poll EquaTerra conducted with outsourcing service providers in the U.S. healthcare payer space, the process areas that exhibited the greatest level of outsourcing demand included claims adjudication, and claims and enrollment data entry. There was also growing demand in emerging knowledge services, such as reporting, planning and analytics.

EquaTerra sees that buyer demand is outpacing supplier maturity, which is characteristic of an outsourcing market in more of a demand pull than a supplier push mode. This is due to the recent increase in buyer demand levels, coupled with a supplier lag in developing and expanding service offerings as a result of historically weak demand for outsourcing services in this market sector. However, as outsourcing service providers targeting the healthcare space - both legacy multi-national and India-based firms moving beyond IT into business services - are starting to develop more targeted and compelling outsourcing offerings, which should help achieve better demand and supply balance.