On Finance: Outsourcing of business processes offers more than just financial gain

September 1, 2005

MCOs are learning how outsourcing allows them to focus on core business

Managed care organizations (MCOs) and other healthcare payers are increasingly faced with financial pressures and profitability concerns stemming in part from shrinking underwriting margins, consolidation and increased price competition. Fueled by the struggle to stay competitive while remaining profitable, more and more MCOs are examining Business Process Outsourcing (BPO) to help them reduce overhead by streamlining business operations. MCOs that implement BPO are able to focus on their core competencies to effectively grow their business including: customer service, innovative plans, provider relations, underwriting and building networks. With its proven success, it is no surprise that BPO has grown to a $180 billion a year industry,rising at 7% to 10% in 2004 with projected 15% to 20% growth by 2005-2006.

MCOs are rapidly learning how outsourcing business processes to experts allows them to focus on the most important issues confronting them without worrying about back-office functions. The specialized workforce, process discipline including the use of Six-Sigma techniques, accountability and other BPO provider resources increase MCO productivity, turnaround time, and reduce claim errors. In fact, depending on the BPO provider and the nature of the contractual relationship, organizations can achieve savings of up to 30% on administrative costs.

Routine back office tasks ideal for BPO include:

Another key benefit is the freeing of capital expenditures as the responsibility for hardware, software, telecom, space and related maintenance costs are transferred from the MCO to the BPO partner. The BPO provider takes on the burden of maintaining a highly secure HIPAA-compliant service center and all of the associated headaches. In addition to immediate access to a platform based on continually upgraded technology, MCOs are no longer forced to manage older and often inflexible systems. Since the BPO provider is vested in continuous process and technology improvements for the long-term, that focus also has a corresponding impact on improving the MCO's customer retention, pricing, and claims processing/adjudication turnaround time in a highly competitive marketplace. BPO is a critical strategy in outperforming the competition in both cost and quality.

What factors should an MCO consider when selecting a BPO partner?

Top players in the BPO field typically offer an evaluation of an MCO's systems and processes to help determine what can be outsourced and where critical savings or revenue can be found. An apples-to-apples comparison of these evaluations can make it obvious which provider most closely meets an MCO's current and future needs.

Key areas to consider include:

BPO is a viable financial decision that makes good business sense. BPO is not a simple delegation of low-end work to service providers. It can position a company for critical results and process improvements that increase revenue and reduce costs while enabling MCOs to keep pace with or outpace the competition. With so little to risk and so much to gain, how can an MCO afford not to consider BPO?

Fred Thierbach is vice President of sales and marketing at Eldorado Computing, which specializes in health benefit management and business process outsourcing (BPO) solutions for the healthcare industry. He can be reached at 602-604-3100.