ITO in Life Sciences Annual 2014, I3

While North America remains the principal geography for healthcare ITO deals, other regions show a steady rise

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ITO in Life Sciences Annual 2014, I2

Demand for infrastructure outsourcing in healthcare IT will rise in the coming years, as that for application outsourcing and systems integration/consulting will fall

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ITO in Life Sciences Annual 2014, I1

The healthcare IT outsourcing (ITO) market will see healthy growth over the next several years driven by reform mandates, payer-provider convergence, consumerization, evolving reimbursement models, and value-chain digitization

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A movement is underway in the state of New York that, if successful, could result in a seismic shake-up in the U.S. healthcare industry. In a contract now under bid for developing a new program for processing Medicaid claims, New York will shift to paying for Medicaid on a managed-care basis rather than the current system of paying by procedure. The risks are high for both the state and its selected service provider, but so are the opportunities for the first movers to capture a large market throughout the country.

Why the change in pricing structure?

Basically New York wants to pay by service. They want to pay healthcare providers (doctors and hospitals) to treat a patient for an ailment but don’t want to pay for all the different procedures that go into that. The state’s goal in changing the structure is to give providers incentives to work with their patients efficiently against the goal of curing them, rather than maximizing their revenue by doing more procedures.

It’s a lofty goal that shows great promise. We can all agree that incentives matter and curing more people at a lower price is a wonderful thing. But there are consequences that accompany this goal.

The consequences are big

The backbone of the Medicaid system is a transactional billing process and platforms for paying by procedure. Achieving New York’s goal will require changing Medicaid’s underlying computer systems and operations of Medicaid. It’s well worth doing, but it’s a big issue.

The stakes are high

New York is one of the first to come to market for changing the payment structure, and the stakes are very high. As we saw with the Affordable Care Act (Obamacare), big rewrites of healthcare platforms are risky, expensive and painful. New York’s plan is no less risky, expensive and painful in that it deals with a substantial part of the U.S. economy and the services cover the poorest of the poor — an important set of stakeholders that we don’t want to disenfranchise.

The risks are also high for the service providers that win the contract to work with the state to develop the new structure. Hopefully New York learned from the lessons of implementing the Affordable Care Act and will spend adequate time defining the requirements and selecting the appropriate service providers and will also create flexibility for the providers as they move down the journey of discovery to build these new platforms. The requirements will emerge as they start working on the problem, making the traditional waterfall process of government contracting difficult.

The stakes are also high for the healthcare providers, who don’t wish to be in the cross-hairs of public scrutiny as the early adopters of the exchanges in the Affordable Care Act.

The benefits are substantial

Despite the high risks, the benefits are equally high. A restructured payment system promises better patient outcomes, greater efficiency for the state, and an improved healthcare industry. And the first mover that successfully builds this platform will be well positioned to capture a very large market and resell it to the other 49 states.

It’s a risky, high-stakes game. But they have all to play for.

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