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SESSION 121 Outsourcing & Managed Care: Have You Evaluated Your Options Lately? COPYRIGHT © 2000 BY THE HEALTHCARE INFORMATION AND MANAGEMENT SYSTEMS SOCIETY. 1 Pamela Waymack Managing Director Phoenix Services Managed Care Consulting, Ltd. Evanston, IL Slide Presentation ••• Handouts Case Study Proceedings ••• Paper

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Page 1: Proceedings 2000

SESSION 121Outsourcing & Managed Care:Have You Evaluated YourOptions Lately?

COPYRIGHT © 2000 BY THE HEALTHCARE INFORMATION AND MANAGEMENT SYSTEMS SOCIETY. 1

Pamela WaymackManaging DirectorPhoenix Services

Managed Care Consulting, Ltd.Evanston, IL

Slide Presentation• • •

HandoutsCase Study

Proceedings• • •

Paper

Page 2: Proceedings 2000

BACKGROUND ON OUTSOURCING

Outsourcing is an approach to business that has become prevalent in reengineered corporations. It isnow increasingly an option to managed care organizations (MCOs) as well. Outsourcing allows busi-nesses to focus on their core processes to meet their business objectives. Over the past decade, AMIoutsourced portions of its data processing to Perot Systems Corporation in a five year $100 millioncontract, Kodak outsourced its information technology services to IBM and the list goes on. Today,MCOs as large as Kaiser

1and Harvard Pilgrim

2and as small as start-up provider risk organizations

are seeking a variety of managed care outsourcing solutions. Executives of managed care organiza-tions need to become familiar with the variety of opportunities in this quickly changing arena.Additionally, they need to know how to approach the review of their internal operations against thesealternatives.

Outsourcing has long been a part of healthcare operations, with over two thirds of hospitals using out-sourcing solutions in at least one department

3. From accounts receivable management to dietary serv-

ices, hospitals have a variety of administrative and clinical services that are managed by outsidevendors. Outsourcing has now arrived in managed care. A walk through the tradeshow floor of any man-aged care conferences shows a growing number of vendors for traditional outsourcing services such asdata centers as well as other business service offerings. Outsourcing is being widely adopted today byMCOs.

4Until recently outsourcing in managed care has generally been viewed as a solution for start-up

organizations or those in crisis. Today, other types of managed care organizations are considering mov-ing to or have already moved parts of their managed care operations to an outsourcing partner.

This session will review a variety of organizations choosing to outsource portions of their managedcare operations. The functions and depth of services that are available in today’s managed care mar-ketplace will be surveyed. This session will examine two major outsourcing opportunities in managedcare today:

1. traditional computer data center services providing access to specialized software and hardware and

2. administrative services for a range of functions in the claims area.

This session will also consider the historical and current trends in managed care outsourcing. Profilesof groups engaged in managed care outsourcing activities will be reviewed as well as the benefits theyare providing in these arrangements. The decision process for analyzing a managed care outsourcingopportunity will be discussed along with the questions to ask prior to entering into an outsourcingreview. The session concludes with a review of requirements for success when entering a managedcare outsourcing relationship and lessons learned in entering and managing managed care outsourc-ing arrangements.

Outsourcing DefinedOutsourcing is a business arrangement under which a company contracts to have all or part of anyoperation traditionally handled by employees using resources of the organization performed by athird party. Outsourcing has traditionally been seen as a tactical means for reducing the overall cost ofoperation for a given function and improving performance. Cost savings across all types of outsourc-ing arrangements in general businesses are estimated to be 9% with the additional benefits of an aver-age increase in capacity and quality results of 15%

5.

Reasons for OutsourcingGeneral Business Reasons for Outsourcing

Organizations outsource to minimize risks and maximize performance. Growing businessesencounter many risks in managing their uneven growth and capital requirements. Today’s technologyrevolution adds to these problems; changes in hardware platforms and the move to the Internet arecausing organizations to make unplanned reinvestments in their information systems. The risks stemnot only from unexpected capital expenditures associated with upgrades but also from the disruptionof service that is typically experienced by an organization before and after hardware upgrades andsystem conversions.

Outsourcing changes the way in which an organization conducts its business. It allows the organiza-tion to concentrate on core competencies by transferring selected services to outside vendors.Outsourcing can result in both lower costs and higher levels of service and competency.Organizations today are looking to outsourcing to provide a competitive advantage to their operationsand services.

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The Move to Outsourcing within Managed Care Organizations

Managed care organizations consider outsourcing for a variety of reasons. Figure 1 illustrates thevariety of benefits being sought through outsourcing. They can be broken down into four general cat-egories: financial control; human and technology resource concerns; service improvement; andstrategic positioning.

Whether a managed care organization is a licensed health plan or a delegated, subcapitated providerorganization, there are a number of factors pushing management to consider outsourcing options. Theprofile of managed care organizations considering outsourcing, as noted in the Background section, isdiverse. Groups in crises have usually been targets for significant outsourcing. The other traditional audi-ence has been start-up MCOs or growing organizations that cannot afford investments in technology.

Today, however, a whole new group of MCOs has made the outsourcing move or is it. Midsized tolarge MCOs that value technology tools and advanced applications are rapidly adapting outsourcing.Established businesses, such as Harvard Pilgrim, that understand their cost of doing business and thecomplexity of managing that business, are shifting to information technology outsourcing. Groupslike Kaiser, needing access to specialized skills or support for new operational requirements, are relo-cating selected business processes to third parties.

Today’s financial pressures are compelling the review of every operation within a managed careorganization for consideration of outsourcing alternatives. MCOs can no longer blindly pass onadministrative costs in most markets. They need to analyze the cost of managing a service internallyversus outsourcing will only accelerate.

Public scrutiny of managed care plans has also increased over the past two years, creating additionallegislative and regulatory requirements that health plans and delegated provider organizations mustmeet. This has resulted in requirements for improved service levels (e.g. claim turn around timesrequired by HCFA) as well as additional administrative expenses (e.g. calculating interest on claimsnot processed in a timely manner). To meet these outside demands, organizations whose operationscannot cost effectively support these requirements are looking at outsourcing as a partial or full solu-tion to meeting the mandatory standards.

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Figure 1: Patient Laboratory Letter Data Flow Diagram

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Technology changes and requirements are another major driving force behind the trend to managedcare outsourcing. Last year it was Y2K compliance that caused organizations to consider outsourcingas an alternative to additional system investments. Over the next two years, federal regulations relatingto electronic commerce and security of patient data under HIPAA may cause other managed careorganizations to look to outsourcing. New capabilities in technology long needed in the industry willalso drive organizations to look to outsourcing solution vendors. Internet applications to support elec-tronic look up and exchange of information between providers and payors ranging from eligibilitydeterminations to referrals are increasingly available from independent companies and will be highlydesirable to MCOs looking to reduce administrative overhead. Organizations without the capital orhuman resources to invest in these initiatives will consider outsourcing as a means to access these tech-nology tools in order to remain competitive.

Management needs to continuously monitor outsourcing opportunities as part of the regular review ofstaff and infrastructure capabilities. This operational evaluation process should consider the full rangeof alternatives and options for improving the processes currently in place, with outsourcing to a thirdparty always on the table.

OUTSOURCING OPPORTUNITIES FOR MANAGED CARE ORGANIZATIONS

Categories of Outsourcing Solutions The variety of services available for outsourcing consideration today has increased over the last fewyears as the industry has grown. A whole array of services can cost effectively be outsourced depend-ing on the size of the MCO. Outsourcing needs can be broken down into two subcategories:

1. information technology (IT) related functions; and

2. work process related functions.

A variety of different service solutions are available under each category.

The first category, information technology, is focused solely on support for pure IT services.Information technology outsourcing involves an outside party assuming responsibility for one ormore IT functions. It can range from management of one component such as desk top PC mainte-nance or help desk support to full IT department management, including supplying all of the peopleand technology to meet the MCOs needs. We will explore in detail in the next section IT outsourcingand a specific outsourcing approach prevalent among MCOs, the remote data center.

A second subcategory of outsourcing in MCOs focuses on work processes; it is referred to as businessprocess outsourcing (BPO). BPO covers a wide range of work processes often considered to be backoffice operations. BPO is the delegation by the customer of the operational responsibility for execu-tion and performance of a business process according to Grahm Kemp, former CEO of G2R Inc, aleading U.S. authority on IT and business outsourcing markets. BPO differs from IT outsourcing inthe recognition that process improvement and not technology alone has the ability to improve boththe cost of doing business as well as performance metrics. The BPO area will be explored in detail ina later section with particular emphasis on the claims operation.

IT OutsourcingData Center Solutions

Over 200 MCOs6

are now outsourcing the management of computer hardware and capitation systemsoftware applications to a third party data center. They access the remote data center via high speedcommunications lines or the Internet and a PC network installed at their own location. All businessprocesses are performed at their site including claims adjudication, reporting, check processing andcustomer service. Through the data center solution they have eliminated all or some of the responsi-bility for managing hardware costs and operations, software upgrades and conversions. Given thehigh cost of software applications and the complexity of creating interfaces, outsourcing to a datacenter operation has been a viable business strategy for many MCOs, not just start up organizations.

The upfront investment in hardware and software is minimized for data center outsourcing cus-tomers. Instead of hundreds of thousands if not millions of dollars for licensing of capitation soft-ware, the same software can be accessed for little more than the cost of installation fees in a datacenter solution. Hardware purchases are limited to inexpensive PC workstations or even dumb ter-minals and communications equipment. The staff time and support fees for computer servers areeliminated. Ongoing costs that can be eliminated include: hardware maintenance; floor space; insur-ance; electrical power for operations and climate control; performance monitoring; system tuning;computer operations; security administration; backup processes; off-site storage of backup media;hardware upgrades due to obsolescence; and numerous other costs. In addition to cost savings,groups selecting data center support often experience decreased downtime due to fewer power fail-ures, improved system reliability and increased capacity and response times.

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Instead of purchasing a license to the software, the outsourcing data center customer generally pays aper member per month access fee that includes software and hardware upgrades as needed. The datacenter’s customers receive the benefit of experienced technical staff to perform system backups, per-formance engineering as well as off-site data storage and detailed disaster recovery plans.Outsourcing customers have all of the benefits of owning their own systems without the day to dayhassles and risks of maintaining the computer center and ongoing expense of system upgrades andperformance tuning. In addition, they gain the flexibility to increase or decrease their processingcapacity as business needs require. Data Center outsourcing also has great appeal to organizationsthat cannot make the capital investment required to license one of the more fully developed managedcare software programs and the associated hardware investment required.

There are also many nonmonetary benefits to managed care organizations that choose to outsourcetheir computer operations to a data center. Besides being able to access more sophisticated softwarethan their capital budgets would normally allow them, they can often access technology tools thatwould be otherwise difficult for them to implement from a technology standpoint. Services, such asworkflow management and EDI, are value added products offered by an increasing number of datacenters. Another added benefit is the availability of niche software programs which have been added tothe core capitation system to enhance the system’s functionality. Software supporting activities such ascode auditing, medical guidelines, case management and risk adjustment profiling of clinical data thatare generally out of the reach for smaller and midsized managed care organizations, are also available.

The number of vendors offering a variety of capitation management systems on a remote data centerbasis is growing rapidly. Some have been in the business for many years while others are new entrantsinto the business. They offer a variety of add-on software products as well as a variety of supportoptions. Because of the growth of this business in the last few years, finding a reputable vendor whowill meet service obligations into the future is extremely important.

MCOs need to keep open their options by considering direct software licensing as well as outsourc-ing to a data center. Most vendors of capitation systems either directly offer data center solutions orhave key clients or alliance partners who do. MCOs needing capitation software should also evaluatethe software’s functionality and ability to meet their business and financial needs. As a part of anysearch data center solutions should also be considered as an alternative to direct licensing as a meansto access more costly and complex software and technology.

In entering any outsourcing arrangement, including data centers, it is critical to identify performancemeasures which your outsourcing vendor will meet. These measures should be set to meet or exceedyour current operational standards and any improvements required. Performance measures for datacenter solutions need to focus on three general areas: technical system performance; customer satis-faction; and financial measures. In the technical area, system response time and availability are keymeasures. Customer service measures include average response time to calls as well as formal meas-ures of responsiveness to requests for modifications. Financial measures include per member permonth IT costs before and after the venture as well as IT capital expenditures with and without thedata center solution.

Other IT Outsourcing Options

Remote data centers are being transformed today. They are adding services beyond their initial imple-mentation set up for clients. New services include the maintenance of benefit plans and provider dic-tionaries. With the addition of these ongoing software maintenance functions, data centers arebeginning to enter the realm of business process outsourcing centers. MCOs seeking a data center solu-tion need to evaluate their ability to manage the complex functions of software dictionary maintenanceand determine if these should be handled internally. Even for midsized MCOs with over 250,000 lives,there is likely to be only one person in the MCO who builds new benefit plans and fee schedules. Withlimited backup and no formal quality review program in place, some MCOs are outsourcing this workprocess to their data center vendor to assure continuity and integrity of the system set up.

Another new entrant to the area of IT outsourcing is the advent of application service providers(ASP). The ASP industry is just beginning and is expected to revolutionize the way that software isdelivered to users. Instead of running applications in-house, ASP customers rent access to softwarevia the Internet. Services may include the full range of IT needs including: implementation, help desksupport, application support and maintenance as well as data center hosting. ASP vendors begin tolook like remote data centers providing their applications through the Internet instead of dedicatedhigh speed communication lines.

Business Process OutsourcingBackground

For businesses in all industries and within managed care in particular, there is an emerging accept-ance of BPO. Given the wide range of services provided in a back office, it is expected that BPO will

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grow at faster rates than data center and IT outsourcing solutions. Industry analysts expect that overthe next five year there will be sustained development of the BPO market both in the number of com-panies that use these services and the number of processes that can be outsourced.

7

With the increasing external scrutiny of the business operations of MCOs and market pressures onadministrative costs more MCOs will consider BPO as a strategy to remain market competitive if notbest in class. Where internal resources cannot meet the performance standards and cost benchmarksset by BPO vendors, outsourcing alternatives will need to be explored.

As a result of business process outsourcing, organizations are able to quickly reap the benefits ofreengineering without the large investment of staff time in planning. Staff are able to focus on otherinternal priorities such as quality control or enhanced service. Any BPO solution will, however, havean impact on the existing work environment and will require some attention initially to revised inter-nal workflows, control mechanisms and audit measures.

BPO is being embraced by a variety of vendors. Some are traditional IT outsourcing vendors enteringan expanded market. Others are BPO vendors from other industries moving into the managed carearena. In evaluating BPO vendors, MCOs need to realize that the required skills are entirely differentfrom those found in IT outsourcing companies. Evaluation needs to take this into account.

BPO outsourcing opportunities in managed care can generally be broken down into two key areas:

a. general administrative functions and

b. clinical/ quality management functions.

The former area shares approaches and opportunities with general business from banks to full serviceinsurance companies. The later is the newest area of development in outsourcing and is generallyunique to the managed care business.

Clinical/ Quality Management Outsourcing

Options include a host of services that range from the traditional precertification and concurrentreview performed by most MCOs to new developments and approaches to better manage medicalcosts and improve quality. New service entrants in the area of clinical/ quality outsourcing include offhour triage services, “ask-a-nurse” programs and disease management companies. All of these areservices that MCOs can provide internally but many are choosing to look to an outside partner. MCOsare selecting to outsource in order to reduce their own internal program development time and cost aswell as to access specialized knowledge and expertise (for services such as disease management). Inaddition, MCOs can often gain economies of scale by not running their own service (for services suchas off hour triage or credentialing).

Credentialing is a recent service that has evolved over the past few years as an area of special interestfor outsourcing. The growth is fueled by the high standards set by NCQA which health plans mustmeet, the resulting need for automated tools in this area and the economies of scale realized inregional consolidation of this service. Companies have sprung up nationally and regionally to exploitthe outsourcing needs of the credentialing business.

Claims Outsourcing

Many of the key areas targeted for BPO revolve around the claims department. Third party adminis-trators (TPA) have traditionally provided claims processing to the indemnity insurance market. Thosesame TPAs and other new vendors are emerging to offer claims outsourcing for managed care organ-izations. This new breed of claims outsourcing vendors understand the rules of managed care andhave software that allows them to manage its requirements including referral authorizations and pro-cessing of subcapitated medical services. Their services can range from focused operations providingclaims adjudication or repricing services only to full service businesses providing a range of servicesstarting with the loading of eligibility and ending with check processing. Those offering a full rangeof services may also provide optional medical management services as well as credentialing andother functions previously discussed. Depending on the range of services needs by an organization,different vendors would be targeted as reasonable solution providers.

Besides offering full claims processing, there are other BPO solution vendors that are focused onsupporting an MCO’s own claim operation. The offerings from these niche service vendors include:mailroom operations, claims and document imaging and/or optical character recognition; claim formdata entry; subrogation, coordination of benefits (COB) and third party liability processing; andcheck and remittance printing. One of the newer developments is the ability for some vendors todetect unidentified secondary insurance and provide for the submission and collection of COB recov-eries due to an MCO.

Outsourcing in an area such as check and remittance printing may offer features not generally seen in other outsourcing arrangements. While these ventures offer similar benefits such as reduced

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administrative costs and faster service they also provide for more secure and controlled processingthan often exists in MCOs. In addition to offering enhanced management control of a vulnerable area,there is often added flexibility in formatting and reporting of information processed.

Performance measures for back office outsourcing will focus on four general areas. In addition totechnical, customer satisfaction and financial measures, quality of service provided will be a newdimension. Using claims processing as an outsourcing example, technical measures will includedimensions such as claim turnaround time and pend levels. Customer satisfaction can be measuredthrough surveys or phone service level agreements. Financial measures may include targets such aspercent of COB collections or may be related back to costs of operation comparisons (such as cost perclaims processed). Quality measures will focus on administrative accuracy (was the correct vendorpaid) as well as financial measures of accuracy (was the correct amount paid out).

SMART SOURCING

Strong outsourcing partnerships do not just happen. They required more than a well crafted contract.They are the result of a well thought out and properly implemented management strategy. This sec-tion will review a four step process that should be taken to achieve a workable partnership. It will con-clude with a summary of some of the best practices observed in the industry.

The Process Defining the Need

The outsourcing life cycle is made up of four distinct phases that are illustrated in Figure 2. The inter-nal business assessment phase is the most likely step to be omitted and yet one of the most crucial forlong term success. This phase focuses on an operational analysis and evaluation of the current opera-tion’s infrastructure and staff. By assessing performance, cost and satisfaction of current operations,decisions can be made at this stage as to opportunities to redesign the current work or add additionaltechnology or personnel in lieu of outsourcing. Should these options not provide adequate return thenan MCO will move to the next phase to determine the feasibility of outsourcing for the operation.

Feasibility Analysis

In the second phase the feasibility of outsourcing selected services is explored. This preliminary plan-ning phase includes defining services to be outsourced, identifying outsourcing opportunities anddetermining the type of outsourcing relationship that best fits these opportunities. At this step anassessment should be made as to the organization’s readiness to support an outsourcing relationship. Isthis the right time for the MCO to embark on outsourcing? Even if outside advisors are used to supportthe initiative, some staff time will be required both to evaluate options and implement the solution.

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Figure 2: Phases of the Outsourcing Process

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The next task in the feasibility phase will define the goals to be accomplished through outsourcing.Based on this information, vendor research will begin both to determine the availability of desiredservices as well as to further define the capabilities of vendors in this market. At this point, if crediblevendors can be found to meet the MCO’s needs, the qualification and selection phase will begin.

The Qualification Process

This phase requires detailed knowledge of vendors providing the defined services. Key requirementsfor service components and performance measures will need to be established. With this foundation arequest for qualifications will be issued to a short list of prequalified vendors. Preferred vendors will beevaluated in a variety of means including reference interviews and an onsite operational assessment.

A contracting strategy will be developed to optimize the success of the operations under the proposedbusiness arrangement. Two unique and critical elements for inclusion in outsourcing contracts are thedefinition of services to be provided and the associated service level agreements. Many contracts aremade with no or only vague reference to services and service levels. It is critical in any BPO arrange-ment that a clear delineation of responsibilities between the vendor and the MCO is developed andagreed upon. To enhance those definitions, a clearly defined service level agreement focused on thoseservices provided by the vendor needs to be part of the outsourcing contract. A final requirement forthe contract is that a means for auditing the integrity of reported performance data is established.

Implementing and Managing an Outsourcing Partnership

To succeed in outsourcing there must be a well thought out transition plan within the MCO. The ven-dor’s implementation plan, while critical, will not address key issues within the MCO to ensure suc-cess. A team should be established within the MCO to be responsible for implementation of theselected solution as well as with ongoing monitoring of the operation after go live. Oversight respon-sibilities include the need to conduct periodic operational audits where an actual service is out-sourced. First hand knowledge and review of actual work processes is an important supplement toperiodic operational measures provided by the outsourcing vendor.

Outsourcing is not a one time contracting process. It is an ongoing management responsibility. Inaddition to overseeing the outsourcing relationship the management team will need to periodicallymodify the outsourcing relationship based on new products or other business requirements. Even thebest of contracts cannot address all of the needs that a business may require over time.

As a final step, management should reexamine operational processes after implementing the out-sourcing solution. New opportunities for improving internal performance exist but are often neg-lected after go live with the new service provider. There will most likely be modification to existingwork processes that need to occur as a result of the outsourcing arrangement. To achieve optimal ben-efit of outsourcing, this step should not be neglected.

Successful Outsourcing Measuring Performance

As noted earlier, defining services and service levels is key to success under any outsourcing rela-tionship. Both service performance and financial measures need to be established. They should bedefined in the early stage of assessing the business case for outsourcing and then in the vendor con-tracting phase again. Performance measures must take on a variety of attributes including quality ofservice metrics, technical performance measures as well as customer satisfaction indicators. For eachservice outsourced, a unique set of indicators must be developed. Their measurement must be clearlydefined so that there can be no confusion on the expectations for fully satisfactory performance.Where MCO outsourcing relationships most often find problems is in this area of unfulfilled expecta-tions. Time invested upfront in establishing an appropriate range of trackable measures will be criti-cal to success. As part of management’s oversight responsibilities these measures need to beestablished prior to any agreement being signed and then need to be regularly monitored.

Other Lessons Learned

The transition of operations to an outside vendor is a critical strategic and operational move for anyorganization. How can you assure best performance? Many vendors have come and gone from the out-sourcing business in just the past three years. Because outsourcing arrangements are multiyear contracts,it is extremely important to pick a vendor with staying power and commitment to the business line.

The barriers to entry for some outsourcing businesses can be minimal thus allowing new entrants tothe business on an almost daily basis. Look for a vendor experienced with the business needs definedby the MCO. Part of what is being acquired in any outsourcing transaction is expertise. If it is notthere, look elsewhere. Picking an outsourcing partner by simply extending a current business rela-tionship is unwise until a careful review of alternatives has been performed. Like any businessarrangement, sole sourcing the contract is advantageous only for the vendor.

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Entering into an outsourcing business arrangement does not allow management to abdicate their over-sight responsibility. There will need to be a new form of oversight to be successful. As noted earlier,ongoing success for your operation under outsourcing requires that management regularly monitorsperformance and provide feedback of any concerns or compliments to the vendor.

Pricing is an often overlooked contributor to successful outsourcing agreements. To be successful,any outsourcing arrangement must allow the vendor to make a reasonable margin on the business.Negotiating a price so low that the vendor cannot make money or worse yet loses money will likelyresult in failed performance and promises.

Another area where pricing impacts success is in the weight it is given in the selection process. Whilemultiple qualifications are considered as part of the evaluation process the ultimate selection decisionis sometimes based solely on lowest price. Treating outsourcing as a low bid process fails to considercapabilities and scope of services offered. Financial incentives of the MCO and the outsourcing vendorshould be aligned to the extent possible if outsourcing is to be a successful venture for the long term.

All contracts in business should include provisions for termination. In entering outsourcing arrange-ments, MCOs that are adept in adding these clauses to provider agreements often fail to incorporatethem into their outsourcing contracts. Having an escape clause ready if needed is prudent businesspractice. Given the exit of several outsourcing vendors from the industry over the last few years, it isimperative that MCOs focus on this issue. Issues to be addressed include responsibilities of eachparty at any point of termination for the transition of operations to another party. In addition, it isimperative to define the conditions under which an involuntary termination of the agreement mayoccur. Performance below the established measures should trigger a penalty and under certain cir-cumstances be cause for termination.

For an organization that has never outsourced, an outsourcing consultant can be beneficial. These pro-fessionals can help assess the business need, define the scope of services to outsource, formalize therequest, bring objectivity to the assessment and assist in negotiations. Outsourcing consultants work-ing in the managed care industry will add in depth knowledge of the vendors serving particular func-tional niches. These consultants are able to identify best vendors in specific functional areas morequickly and more thoroughly for their clients.

ConclusionThe variety of outsourcing services available on the market today has increased along with the num-ber of vendors offering these solutions. Managed care organizations trying to achieve cost effectiveoperations and best in class performance need to continuously review their operational performanceand cost against the alternatives offered by outsourcing companies. Keeping abreast of industrydevelopments and trends in outsourcing will be a strategic advantage to those MCOs seeking to suc-ceed in the competitive arena of managed care. Even those organizations not ultimately selecting tooutsource will benefit by comparing their operational performance to that of external vendors to iden-tify opportunities for financial and overall performance improvement.

AUTHOR BIOGRAPHY

Pam Waymack is the Managing Director of Phoenix Services Managed Care Consulting, Ltd. in Evanston, IL. She works with MCOs to improve their performance in strategy, operations and technology.

REFERENCES1 Press release dated September 20, 1999 by The Permanente Company and Meridian Health Care

Management, Inc. on Signing of a Management Services Agreement with Kaiser FoundationHealth Plan of Colorado.

2 “HMO Outsources Technology Services” by John Morrissey for Modern Healthcare October 8,1999.

3 “Contract Management” by Reid Sunseri for Hospitals and Health Networks October 1, 1999.

4 Managed Care Organization Outsourcing: An Industry Report, Medimetrix 1999.

5 “1995 Trend Report”, The Outsourcing Institute.

6 Based on telephone survey conducted by author of key capitation software vendors and theirbusiness partners offering this service in January 2000.

7 “More Arrows in the Quiver” An interview with Paul Cofoni president Technology ManagementGroup in Outsourcing Journal January 2000.

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