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Outsourcing makes sense


The pressure is on to reduce costs, and many plans are finding creative ways to outsource operation functions.

The pressure is on to reduce costs, and many plans are finding creative ways to outsource operational functions. One of the main reasons for outsourcing is the predictable and often fixed costs that help plans direct financial resources to medical care rather than administration.

"Anything in the backroom has been subjected to outsourcing for a while now," says Peter Kongstvedt, MD, principal of P.R. Kongstvedt Company, LLC, in McLean, Va. "We see outsourcing when a plan has to reproduce [administrative functions] and has to be compliant with every requirement and every new standard. It gets to be a lot of money. And contracting with a firm that will provide that, and then spread those costs over a large base, can be very cost-effective."

According to Markets&Markets, a Dallas-based market research firm, the payer outsourcing market will grow about 30% between 2011 and 2016. The traditional areas of outsourcing include: claims processing; human-resources services; member services; and finance.

Record service demand will be driven by chronic illness, lifestyle diseases and an aging population. Payers will need to handle more claims than ever before. According to HfS Research, a research analyst firm, 35% of the payers it surveyed are outsourcing manual claims processing, enrollment and billing.

Don Hall, MHE editorial advisor and principal of DeltaSigma, a healthcare consulting firm, says the top reasons for outsourcing claims are cost and quality. Paper claims can be sent to an outside processor and electronically returned with accurate, speedy results. The cost of outsourcing the task to offshore organizations can be substantially less than in the United States. Hall says that in addition to current administrative firms operating in India, Vietnam is also emerging as a player in claims outsourcing.

Standardization is a driving force to control claims-processing costs. The more unique provider-contract arrangements a plan has, the more difficult it is to autoadjudicate claims. Increasing the number of standardized or similar contracts speeds up the outsourced administrative function.


Typically, larger plans contract group members through brokers, but the market is changing to direct-member marketing. Some plans have developed Facebook pages to find and retain members.

With the implementation of health insurance exchanges quickly approaching, today's plans are concerned that innovative and non-traditional benefit companies will crop up, Hall says. A traditional plan's existing members will be able to view the competitive field and might choose a new health plan once all the options are laid out.

Joint marketing might be one way to help retain members. For example, Aetna and Costco recently announced a product in nine states, in which retail consumers can purchase a policy with one of five health benefit choices geared toward individuals.

"In essence, you can say that Aetna is outsourcing its marketing to Costco," Hall says. "The reality is that the world is changing so fast in healthcare that a lot of the things we thought wouldn't be outsourced-like marketing-are now on the table, and [plans] are looking at what is it that they're ultimately selling."

Hall believes insurers are looking at other retail areas to create innovative platforms for their products. For example, in November 2011, Blue Shield of California opened a 500-square-foot, brick-and-mortar retail space within a larger grocery store to attract customers to sign up for its plan offerings. Retail space has become a trend to reach members individually instead of in the typical business-to-business model.

Ultimately, Hall says, a product is more valuable to a consumer if it's really low cost. Any operation that can be outsourced to get to that low price point is up for consideration.

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