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US: IT outsourcing for healthcare sector to grow 40% by end- 2017

Black Book estimates the demands of data security, population health and value based benefits solutions, and revenue cycle modernization to drive the evolving payer ITO market in excess of US 60 billion by Q4 2017.

2015-11-23 16:55:56



The payer IT outsourcing market is expected to grow over 40% in next two years through the volatile environment, as better software solutions have accelerated IT expenses faster than anticipated with no corresponding lift in revenues for many health plans.

Black Book surveyed 829 health plan ITO users from Q2 to Q4 2015 to determine trends in the shifting marketplace of service providers and client expectations.The regulatory overhaul of reform mandates such as Affordable Care and ICD10 are rapidly changing US health plans' operating models are creating opportunities for modernized legacy systems and applications outsourcing.

"Health insurance niche software and services vendors are once again offering outsourcing as a cure-all for organizational cost controls," said Doug Brown, Managing Partner of Black Book Research Group.

Still less than one in ten of health plan IT executives surveyed are considering full or end-to-end offshored solutions. "With concerns over hostile offshore locations and escalating health data security and privacy issues, fewer payers are entertaining having a third party overseas corporation between them and their IT nervous systems in 2016.

Until as recently as January, 75% of reporting health plans were cautious of major outsourcing initiatives, particularly using offshore vendors as data breaches increased their fears of unsafe operations.

Health plans are budgeting at least twenty percent increases in outsourcing spends for 2016 for the following service models and functions:

Only 5% of health plans with over 100,000 members are considering full, end-to-end outsourcing in 2016 strategic IT planning. However, individual projects and support centers see significant increases in outsourcing support including:

Application Support, with a leap to 69% of all health plans in 2016, up from 35% in 2015
Desk Top Support and Help Desk Support, could experience a rise to nearly 80% of larger health plans turning to outsourced vendors in the next 12 months.

The largest increases from both large insurers and small health plans, according to surveys, are projected to be in Security and Privacy Projects, and Cloud Initiatives, both expected to grow to over 50% of all new outsourcing business initiatives for 2016 in managed care organizations.
Additionally, new project strategies and reforms are pushing payers to focus on three additional outsourcing areas by Q3 2016: Comprehensive Software in Core Administration, Care and Network Management, and Constituent Engagement.

"Changing government regulations are leading insurers to outsource more IT functions including big data and data base management, analytics as a service, mobile applications, population health, and security solutions," said Brown.

Black Book expects that by 2018, half of all health plans will demand substantial risk sharing with their outsourcing providers as operational efficiency will become critical at four in ten of the nation's small health insurers and plans, resulting in the development of more intense data-driven payer strategies.

While many industries began utilizing IT outsourcing as a concept by the 1990s, healthcare payers did not immediately embrace it. "The decision health insurance companies have been among the slowest to adopting outsourcing," said Brown. "However, shrinking margins, higher claim disbursement, and increasing competition have forced health insurers to look at outsourcing at this point in time to prove efficiencies and focus resources toward the core functions of product development and innovation."

Black Book reports that the number of viable payer sector IT outsourcing suppliers has grown smaller over the past ten years, particularly as many health plans are narrowing their options to US-based managed services vendors only.

Black Book research shows that more than half of the top revenue producing US health payers already outsource at least some part of their IT infrastructure management.

44% in Q1 2014 soared to 72% in Q3 2015.

93% of health plans surveyed plan on outsourcing analytics related projects by Q1 2017.
"Health plans are also investing in member aka consumer facing mobile applications, remote health monitoring, and virtual care which will create more demand for big data and analytics to support heath plan population health indicatives," said Brown.

The opportunity for information technology vendors in the health plan marketplace are accelerating, but so are instances of shorter deal lengths, incumbent vendor replacements, mergers and acquisitions and rising concerns for member data security.

The payer ITO market place adoption rate failed to change markedly from survey year to survey year. Among all payers, public and private, small and large plans, 63% outsourced two or more information technology functions in 2014. In 2015, 66% of all payer organizations outsourced two or more information technology functions. Only 3% of new health plan outsourcing clients were first time adopters in 2015.

Specifically, 2015 payer ITO users include specific applications development and maintenance outsourcing (83% of all payers outsourced this single function in 2015), infrastructure including remote infrastructure management and cloud infrastructure outsourcing (64% outsource), business intelligence, data warehousing and analytics outsourcing (23% outsource), quality assurance and testing outsourcing (19% outsource), and professional IT management services outsourcing (10% outsource).

Black Book also found that 80% of pending Q4 2014 and Q1 2015 ITO contracts were delayed as prospective clients confirm vendor provisions to safeguard member and plan data before executing deals. 77% of current payer ITO clients have launched initiatives to confirm their vendors' data security capabilities in 2016.

"Recent data breaches in the health plan sector have IT outsourcing clients assessing confidence in their vendors' operations and procedures as a safeguard to ensuring member data privacy in an effort to avoid all that comes with a data breach," said Brown.

The payer market place for claims modernization, big data/population health, security and analytics outsourcing services is projected to rise at a 39% compound annual growth rate, with most significant demand in the next twelve months from start-up health plans, provider-based plans, IPAs, and medium sized insurers.

In contrast, a 12% CAGR predicted for infrastructure and cloud services, and 9% CAGR for applications development and maintenance initiatives, attributed principally to renewals and new contracts from large health plan organizations.

Dell led the healthcare payer sector in overall IT outsourcing client satisfaction in 2015. Dell also ranked highest for payer IT outsourcing sectors in population health, application development and mobility, security solutions and cloud initiatives across all health insurance organizations surveyed.
Top vendors were honored by clients for outstanding health plan performances across eighteen key performance indicators in additional to Dell through Q1 2015. These top rated vendors include: Deloitte, Accenture, Cognizant, Trizetto, and IBM.


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