Tag: healthcare

Smallest Healthcare Provider Enterprises Drive Most Provider-Side Healthcare ITO Transaction Activity | Market Insights™

EFR-2013-12-R-1010-I-3

The smallest healthcare provider enterprises drive most provider-side healthcare ITO transaction activity … but not TCV. Over three quarters of IT transactions are driven by the smallest providers, those with less than US$10 billion in revenue. At the same time, that same group of buyers accounts for only 38% of healthcare provider ITO TCV.

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Accenture Takes Over for CGI | Sherpas in Blue Shirts

We just witnessed one of the most spectacular examples of where choosing a service provider based on the lowest price can be a really bad idea. The Obama administration’s recent about-face in contracting with Accenture to take over for the incumbent CGI on the beleaguered healthcare.gov website is a vivid reminder that low price doesn’t necessarily end up being low cost.

Accenture is the premier firm in large-scale systems integration. So we have to wonder: Does the Administration wish they had picked Accenture to begin with?

One has to feel sorry for CGI, for the healthcare.gov build and launch is notorious for the government’s role in poorly scoping and poorly managing the project. So it’s likely that any firm might well have come to grief. Still, this is really just a simple story of penny-wise and pound-foolish decision making.

Government procurement decisions tend to settle on past experience and low price. Accenture is the most-respected provider for complex, large-scale SI projects; but as anyone that has bought services from Accenture knows, its expertise comes at a premium. Yet when a project absolutely has to succeed, the price is worth a premium.

Lesson learned and buyers beware!

If you select a service provider based on price and terms/conditions, you may walk right past the company that would be your strongest partner in delivering the results you want. Perhaps even the government now realizes the hazards of low-cost bidding. When it really matters, buy the best.

Obamacare’s Pulse in the Healthcare Services Industry | Sherpas in Blue Shirts

Will the troubles of Obamacare upend the robust growth that we have been experiencing in services in the healthcare space? It’s an interesting question, given that Obamacare’s march toward the looming January 1, 2014, launch date resembles a complicated traffic snarl with a lot of cars wrecked and not drivable.

Let’s look at the situation from three perspectives.

First, there is a possible so-called “nuclear option” in which Congress would repeal the Affordable Care Act, better known as Obamacare. The fact is the underlying reforms necessary for healthcare providers (hospitals, physicians) and payers will further churn an uncertain market and drive more change into the market. So the impact from Obamacare would be even more growth for the services businesses.

Second, it is highly unlikely that the healthcare industry’s new commitment to evidenced-based medicine and data-driven health plans will diminish. Although the business models and supporting processes may eventually take a different form, the commitment of both industry and government for the underlying changes will continue whether or not the government implements Obamacare. Again, the massive industry-wide changes will drive growth for service providers.

A third perspective involves the life sciences space. Here the industry is at the brink of a patent cliff with patents expiring on blockbuster drugs. This dilemma will cause life sciences companies to either restructure to accommodate a lower revenue base or to change their business models. As the patent expirations will continue unabated, the need for services providers to support business change will continue without regard to what happens with Obamacare.

So we believe it’s clear that Obamacare has a strong pulse and is no lightweight when it comes to impacting the healthcare services; it may actually provide a big bounce to services providers’ revenue.

Despite the bumpy, uncertain road Obamacare is traveling on, its failure or success will not change the trajectory of the growth in the healthcare services industry. The necessary changes to business processes and models in the healthcare provider and payer space will continue under any scenario that happens with Obamacare.

Video: Outsourcing Implications of Healthcare Payer-Provider Convergence | Sherpas in Blue Shirts

In March 2013, Everest Group released a complimentary viewpoint titled “Outsourcing Implications of Healthcare Payer-Provider Convergence.” This viewpoint delves into the technology priorities for payers and providers. Given the complex nature of the technology priorities, this viewpoint brings out the supply-side challenges for organizations and how they can go about selecting the right service partner for their technology needs. In this video, Everest Group’s analyst Abhishek Singh shares some of the key headlines from the viewpoint.

What the Supreme Court Ruling Means for Global Sourcing in Healthcare | Sherpas in Blue Shirts

On June 28, 2012, the United States Supreme Court provided its much awaited ruling on the Patient Protection and Affordable Care Act. In what is considered a surprise judgment by many quarters, the Court upheld almost all provisions of the law passed in 2010.

Here is how the court ruled on the two key provisions that generated the most debate – the “individual mandate” and the challenge by the states for the expansion of Medicaid program:

  • Treating the provisions of the individual mandate as a tax versus a penalty, the Court confirmed the validity under Congress’ constitutional authority
  • Regarding the expansion of Medicaid, the court ruled that the federal government cannot place sanctions on the states’ existing Medicaid funding if the states decline to go along with the Medicaid expansion

So, what impact will the Supreme Court ruling have on the outsourcing / global sourcing activity in the healthcare vertical? Will we see a surge in demand and see activity accelerate now that the uncertainty surrounding the law is now over? Three reasons why we believe that the Supreme Court ruling does not suggest any short-term (i.e., in 2012) acceleration in outsourcing activity in the healthcare vertical:

  1. Obama versus Romney: GOP candidate Mitt Romney’s assertion – “What the court did not do on its last day in session, I will do on my first day if elected president of the United States. And that is I will act to repeal ObamaCare” – makes it clear that until the outcome of the Presidential election is known, uncertainty will continue to shroud the healthcare law
  2. Next major milestone – 2014: A number of new milestones under the law, including the establishments of health insurance exchanges and the individual mandate, do not come into effect until 2014. Healthcare companies are likely to wait until the outcome of the elections is known before making deep investments in these areas
  3. Big payers adhering – come what may: Select large payers such as UHG, Aetna, and Humana have pledged to adhere to certain provisions of the reform irrespective of the future. These payers have already implemented some of these changes (e.g., MLR mandates) and thus the technology impact of some of these changes is likely limited in the short term.

The above is not to suggest that outsourcing / technology innovation activity in the healthcare vertical has reached its peak. If President Obama wins the election, we are likely to see a surge of activity as companies prepare for the 2014 initiatives. Even a number of current bystanders will jump in the fray to ensure compliance with regulatory reform. On the other hand, a repeal could significantly alter outsourcing activity and potentially even jeopardize existing initiatives if Mitt Romney is successful!

As it pertains to uncertainty in the healthcare markets, is this the beginning of the end, or the end of the beginning? Only time, and the results of the presidential election will tell….

Almost Thumbs Up for Towers Watson’s Acquisition of Extend Health | Sherpas in Blue Shirts

Following Towers Watson’s acquisition of Aliquant in early 2011, its May 13, 2012 announcement of its agreement to acquire Extend Health, Inc., which operates one of the largest private Medicare exchange in the United States, is clear confirmation of its belief in the potential growth of the entire U.S. health and welfare (H&W) market.

And there are a number of factors that make Extend Health’s offerings an attractive solution for Towers Watson to have in its arsenal:

  • Multiple surveys indicate that quite a few organizations are planning to re-evaluate their employer-sponsored plan strategy for the retiree population in the coming years
  • There is an increasing realization that retiree exchanges are not only more economical for employers but also provide better individual options to participants
  • This is still a fairly new model, pioneered by Extend Health in 2006 (and there’s inherent value in being first to market)
  • With hundreds of thousands of baby boomers reaching retirement age in the not-too-distant future, there is significant headroom for growth

It also likely paves Towers Watson’s path into the active employee exchange market, which providers playing in the retiree market see as a natural next step extension of their offerings. For example, both Aon Hewitt and Mercer recently announced active employee exchange solutions. But several words of caution here: 1) the rate of active employee exchange adoption must be closely watched as it is fairly nascent today; 2) while all the Tier 1 providers now have “exchanges” in their offerings arsenals, they are, in a way, disruptive to the traditional benefits administration business model; and 3) it’s unclear how this will dovetail with the state exchanges that will come into play in 2014 if things remain track on with healthcare reform.

What is clear is that Towers Watson really liked what it saw in Extend Health, as what began as an announced partnership in August 2011 became an acquisition less than a year later. And one can understand why: the projected run rate for 2012 and the expected growth rate for 2013 is expected to be 30 percent or more.

There is, however, one aspect of this deal that I don’t like. The US$435 million price paid represents a >7X multiple on current revenues. This kind of multiple is typically available for a pure software company, as opposed to a services-bundled technology offering. However, it seems Towers Watson didn’t want to be a late market entrant, as exchanges represent an increasing barrier of entry for new providers as the existing ones scale up their capabilities and client bases. What do you think? Did it made the right bet?

Electronic Medical Records: Is Cloud-Based or Client/Server Delivery Right for You? | Gaining Altitude in the Cloud

Electronic Medical Records (EMR) has the ability to transform and enhance virtually all communications, transactions and analysis related to healthcare information. All 50 states are quickly adopting EMR, and the government has made adoption of EMR a cornerstone of the healthcare initiative. While EMR can have significant positive impact on physicians’ productivity, patients’ access to information, and insurance companies’ ability to reduce errors and claims administration costs, it must be implemented properly in order to achieve those benefits.

Much of the implementation solution answer lies in what delivery model is best for any given healthcare organization: a private cloud-based next generation IT approach or a client/server-based legacy approach.

Cutting through the hype, there are a number of advantages to adopting cloud-based EMR:

  • No upfront software license purchase costs
  • No hardware to purchase or maintain
  • Better overall support, including for disaster recovery
  • Typically stronger security and data protection mechanisms, and more likely compliance to HIPPA regulations, through host companies
  • Accessibility for physicians on the move

Indeed, a private cloud may be the right EMR solution in many cases. Consider Beth Israel Deaconess Medical Center. It has 1,500 member physician practices and facilities distributed throughout 173 locations in eastern Massachusetts. The Beth Israel Deaconess Physician Organization (BIDPO) provides medical management services. By becoming a member of the BIDPO, physician practices receive reduced contractual rates from health insurance companies. But for compliance, those practices must be able to measure the quality of patient care and transmit those metrics electronically to the insurance companies.

As putting servers in each facility, per a client/server model, was not going to be an effective or cost efficient approach to the electronic transmission requirements, the Center instead adopted a private cloud-based model with a centralized database and application services. BIDPO selected VMware as the virtualization platform, Third Brigade as the security solution provider, and Concordant for the day-to-day operational management of the environment and help desk for the physicians. The solution it adopted is modular, enabling it to grow as more facilities are migrated to the system.

On the other hand, there are numerous potential downsides to a cloud-based EMR solution:

  • Latency or lag times
  • Lack of availability of a robust and reliable Internet connection in rural areas
  • Bandwidth limitations
  • Constrained back-up and data accessibility
  • Inability to access or work with data if the service provider’s network is down

Given these issues, a rural practice of five physicians who see 35 patients a day and want quick access to their medical records and prescription history, especially for those on multiple drugs that could cause adverse or allergic reactions, will fair far better with a client/server EMR model.

If you’re wondering which EMR delivery model is a better fit for your healthcare organization, the following table should help:

EMR Delivery Models

Private cloud-based EMR solutions do provide flexibility and scalability, and we will see more healthcare organizations following Beth Israel Deaconess Medical Center’s lead in the near future. But before you jump on the bandwagon, you must consider whether the cloud is suitable for your particular and unique situation.

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