Specialization and Global Reach Characterize the IT Services Landscape

Apr. 10, 2007 | While the low hanging fruit was harvested in the first wave of healthcare-IT outsourcing, both national and global companies now report that the biggest opportunities lurk  in niches. Moreover, traditionally entrenched players like EDS and Oracle are ceding ground to new global companies, say observers. Even modest IT services companies that deal mainly with community hospitals are tapping employees located outside U.S. borders.

Stir into this frothy market the steady growth of software provided via an application service provider (ASP) model, the growing desire by healthcare providers to outsource billing, and the ongoing need for systems integration and suddenly the outsourcing landscape  looks more nuanced and complicated.

"The healthcare domain is becoming more specialized and competitive," says Anubhav Saxena, associate vice president of HCL Technologies, in Sunnyvale, Calif., a division of a $3.8 billion company of 41,000 employees, operating in 17 countries. Healthcare-IT comprises around 5 to 8 percent of HCL's revenues.

Demand is strong for IT systems to cope with increased regulations (such as HIPAA and NPI) and financial reporting requirements (such as Sarbanes Oxley), notes Saxena. However, clients want flexible systems and demonstrated low TCO. And, of course, the surge to move virtually all business processes online continues.

"Now when I visit a doctor I expect my medical history and records to be made available online, in a secure and ubiquitous manner and health decisions and action items to be made based on a single version of the truth,” says Saxena describing what is a distant reality for most consumers although progress is being made linking doctors and other health workers to secure digital health-IT systems.

Cost remains an issue, he says. So is sensitivity to data handling and storage. For example, HCL works with a fair percentage of the largest healthcare organizations in the world, and many of them insist that sensitive data not leave the United States. In those instances, HCL stores the data in local “business-ready” repositories.

Yet another trend, says New York-based FCG Management Services, is a stronger tendency by clients to divvy up their needs among several IT providers.  “You cannot go to one company any more and expect to get everything,” says Bob Smith, president of FCG outsourcing services.

Even though vendors are supplying better tools at better price points, says Smith, clients are less inclined rely on just one or two outsourcing vendors and instead opt for three or four who can “go a mile deep,” in specialized areas. Vendors now focus on building relationships with certain hospital networks and research institutions, such as IBM with Scripps in San Diego, and university hospitals in Cleveland working with CISCO to put data on line, he says

Much of FCG business is comprised of hospitals and hospital chains located in areas — rural or urban (high cost of living) — where it’s difficult to recruit and retain IT personnel with the requisite skill sets. “The faster better cheaper syndrome is over,” said Smith. “People are looking for specific skills.”

Despite the hoopla, outsourcing remains a minority activity among hospitals. Only 90 of the 5000 hospitals in the United States are “verifiably outsourced,” says Smith. That would seem to leave a huge untapped market, but prying open that market is complicated. For one thing, political forces often incline hospitals to hire from within the community since they often provide some level funding.

Cultural problems and training time can also be problematic. While access to global talent is important, says Smith, it takes time to bring a virtual team up to speed on a client’s needs and processes. Likewise, retaining staff once they’ve been trained is a challenge. “In some cases technology makes it easier to connect. It doesn’t break down cultural or learning problems,” he says.

Yet for those who do outsource IT, Smith says it can be a low risk way to try new technologies and to stay current on the latest in software. A hospital or research organization can operate on dozens of different software applications, so just integrating systems and getting them to communicate with each other can be a complicated endeavor. Outsourcing when internal IT staffing is slim can help deal with such problems.

“Outsourcing opens windows”, Smith observes. It offers outside expertise to hospitals with limited IT talent, and it helps keep those with staff at the cutting edge. The bottom line, though, is to make technology translate to better patient care. “More and more I see the division of hospitals between the [health-IT] haves and haves not,” he says.

Renewed efforts to convince the market that ASP-delivered software and services are viable and preferable is another trend. Indeed, the ASP model has struggled for years to embed itself in industry. Now also often called software as a service (SaaS), the business model seems to be gaining traction as internet reliability and business consumer comfort increases.

“You might see organizations outsource specific areas to vendors who have an ASP model, [such] as transcription,” says Ralph Fargnoli, founder and CEO of Beacon Partners, a 100-person Weymouth, Mass. firm with a national client base of multi-hospital chains, medical schools, and community hospitals. “We are also starting to see billing and collection being outsourced to new vendors that have fourth or fifth generation systems.” he says.

To some extent outsourcing transcription or billing services is easier than tackling many IT systems, concedes Fargnoli, but complying with HIPAA regulations can be tricky especially given the fluid nature of the rules and enforcement practices.  

“We are branching away from just delivery of IT outsourcing, to issues in [the] healthcare industry such as patient safety and outcomes,” says Fargnoli, who thinks applications that help screen patients earlier and “avoid trips to emergency room” will become more important. “IT has caught up with these demands,” he says, mentioning the growing health-IT pushes form Microsoft, Oracle, Revolution Healthcare, Infosys, and Accenture.

Outsourcing can also provide early access to new technology without tying up precious capital equipment budget dollars and many healthcare providers prefer that funding strategy. Fargnoli also says certain functions, such as high volume laboratory transactions, are well-suited for outsourcing to places like Vietnam or India. 

Shari Stoltenberg is president of Stoltenberg Consulting, a 42-person Pennsylvania firm with a national client base. Her company focuses on application software outsourcing and steers clear of hardware. “I’m not a huge proponent of companies going in and taking over,” she says. “Often they use IT as a training ground.” Stoltenberg notes providers are now using outsourcing as a response to pay for performance pressures to say to their insurance companies that they have greater efficiency in billing, for example.

Right now electronic medical records are hot, Stoltenberg says.  Clients are asking for help integrating EMRs between the physician providers and hospital systems. Physicians want to see the results in a timely way, which means automating records. A few  larger provider organizations are trying to drive this trend as well. The other place she sees increased activity is in clinical  information systems, and cites GEcentricity, Nextgen, and EPIC as three players she encounters most in the marketplace today.   

Outsourcing is hardly new, notes Mark Brownlee, associate vice president, head of Healthcare and Life Sciences Consulting, Infosys Technologies Limited. ”We are in the tail end of the second wave now, which was a phase when the provider sector explored more aggressively ways to reduce costs. That wave spawned a wave of large scale outsourcing contracts. Many of those large contracts are coming up for renewal,” Brownlee says.

Choosing the right services partner remains a challenge, he says, and selecting unwisely will introduce inefficiency instead of productivity gains. “Our opinion is that it takes large investment [by the services provider] in new technology tools to make system integration and data integration easier,” says Brownlee. Programmers need extensive training and certification in life sciences and regulatory requirements.

Perhaps no surprise, Infosys is hiring experts, such as doctors, nurses, and dentists to maximize its health-IT capability, he says, plus it’s pre-investing in tools and has developed  “accelerator” modules to speed implementation.

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