Weigh total cost before moving to the cloud

February 1, 2012

Consider hybrid alternatives when switching to cloud computing.

Key Points

ALMOST ANYONE WHO goes online makes use of cloud computing-for example, to share photos. Whether the move to the cloud makes sense for the health plan business depends on the type of cloud offering, potential cost savings, functional and strategic advantages, and whether security and privacy can be assured.

"We refer to the cloud as the collection of devices-which could be PCs, servers or any mobile device-that uses the network to pool resources and work together," says Dennis Schmuland, MD, chief health strategy officer, Microsoft.

"Private clouds have the same architecture as public clouds, but instead of paying a vendor, the organization builds its cloud," says Dr. Morris. "The private cloud still has a data center, but the architecture allows more effective use of capacity and sharing data among applications in an integrated data model."

Hybrid clouds are environments that use some of the aspects of public and private clouds-Dr. Morris cites supply chain shared services and imaging storage as examples-and he says a variant called community cloud, which is a shared resource among collaborators, is an attractive model.

Where the cloud is in its evolutionary cycle depends on the industry.

"Healthcare tends to lag a little bit behind other industries in terms of disruptive or innovative technologies," says Dr. Morris. "Colleagues in other industries have been talking about cloud for a long time. In healthcare, cloud computing is relatively early in the adoption phase, but it is well into the hype phase."

Lisa Gallagher, senior director of privacy and security at HIMSS, agrees that cloud is a marketing phenomenon, and she says the legitimate potential benefits associated with cloud computing often can be obscured by the marketing buzz.

"Organizations are looking at cloud solutions for cost savings, operational efficiencies and lower implementation risks, including security risks," Gallagher says.

Although adoption has been relatively slow in healthcare, analysts say that will change because of economic and functional drivers.

It's been said that 80% of a healthcare plan's IT dollars go to "keeping the lights on." Economic drivers of the cloud start with reducing or eliminating the overhead and capital expense of maintaining a local data center. Plans need to do financial modeling to predict the level of savings, but overall, Dr. Morris projects that a health plan can save 30% to 40% off its data center operating expenses with cloud computing. Offloading some of these costs to a cloud service provider enables IT to focus more on strategic projects and those that will drive growth.

"The level of savings varies, and it will depend in part on where the plan is in the life cycle of its data center and equipment," says Dr. Morris.

Use of the public cloud allows an organization to shift some financial burden to the cloud vendor, starting small and paying only for what it needs.

"Many health plans, for example, are now consolidating or even downsizing their data centers because under the new medical loss ratio requirement they just can't afford to make those up front capital investments," says Hector Rodriguez, Microsoft health industry chief technology strategist.

The "pay as you go" elasticity also brings the advantage of absorbing bursts of traffic and high computing demand that might occur from a fall flu-shot campaign or open enrollment, for example.

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