Outsourcing has proved to be a major "hot potato" for the US healthcare industry. Coming from the UK, the healthcare system in the US is like comparing a Porsche with a Lada, but the British National Health Service (NHS) has, in recent years, been resorting to outsourcing major pieces of its back office infrastructure in efforts to slash cost, centralize and standardize processes, and access skilled IT services it simply does not have inhouse. I don’t believe the NHS would have dragged itself from a 1950s infrastructure to something vaguely resembling a modern-day organization, if it wasn’t for the outsourcing services that have been provided by Accenture, EDS, IBM, Steria (Xansa) and others. Outsourcing provided a shock to the system that forced reform and modernization it was never going to achieve on its own.
When you spend time studying the improved efficiencies and cost saving opportunities from which hospitals, managed healthcare providers and ambulatory services can benefit, simply by centralizing and standardizing their operational processes, you will scratch your head to understand why this industry has been so resistant to change. These operational functions include specific healthcare processes such as revenue cycle management, contract management, clinical data management, patient accounting system management, in addition to the classic general and administrative processes such as application management, payroll, benefits admin, transactional accounting and management reporting services. I have seen cost savings opportunities well in excess of 50% from original budget (and sometimes even more) that many healthcare providers can take advantage of, by outsourcing many of these processes to providers such as ACS, Perot Systems or Vengroff Williams, which specialize in taking on healthcare processes from both onshore and offshore locations. Perot, for example, has significant medical coding resources in Bangalore, which comprise qualified medical personnel to take on routine revenue cycle processes such as medical insirance coding. Vengroff Williams has service centers located onshore within the United States for healthcare providers nervous of taking processes offshore.
So why is this industry one of the least willing to adopt third party services? Much of the problem is cultural – healthcare managers tend to stay with organizations for very long periods, and if they do switch jobs, will move into other organizations with similar infrastructures. Things do not change much. Most of the administrative functions are layered with top-heavy management structures that are highly resistant to change and argue that outsourcing will severely disrupt the quality of their services, and ultimately the quality of healthcare. Perspectives of third-parties are that they will never be able to deliver the quality of services as well as they do themselves. The healthcare industry has also been, on the whole, highly profitable, and the onus to take on "disruptive" strategies such as outsourcing has never been as strong as it is for highly competitive industries such as manufacturing and consumer business. And I can tell you from experience, that outsourcing is rarely successful where the resistance is deep and senior managers simply will never buy in.
The US healthcare industry is plagued by high costs throughout its value-chain – from the drugs companies, through to the doctors’ salaries and finally through to the heavy administrative costs of healthcare services. My view is that we need to see a knock-on effect throughout this value chain to reduce the overall cost of healthcare in the US, and outsourcing is just one catalyst to enable this. The pharma industry is going to be the spark for change ultimately, as competitive dynamics, globalization and low-cost generic products are forcing the incumbents to look towards new ways of stripping out cost and driving efficiencies. GlaxoSmithKline, Novartis, Bristol Meyers Squibb and some other leading pharma giants have recently entered into BPO engagements, and last week Astra Zeneca announced a significant engagement where Cognizant will provide clinical data management services. At the end of the day, competitive dynamics drive change, and this is the prime vehicle for outsourcing adoption in pharma. With increased competition and pressure to reduce costs among healthcare providers, surely it’s only a matter of time? Perhaps the next occupant of 1600 Pennsylvania Avenue will have a say in this?