Ephor Group Healthcare IT Services Brief


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The future of healthcare business services. Market landscape trends for healthcare services, and healthcare IT service providers

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Ephor Group Healthcare IT Services Brief

  1. 1. Healthcare IT Thesis for Managing the Business of Healthcare More Efficiently. The “Yellow Brick Road” to Wealth Creation in IT Outsourcing (ITO) “Healthcare is a terminal illness for America’s governments and businesses. We are in big trouble.” - Professor Clayton Christensen, Harvard Business SchoolSituation Analysis: Patients are not satisfied with the Quality of Care and the Cost of Care.While Providers of Care are not satisfied with the Vendors.Preamble: The advent of the ‘Patient Protection and Affordable Care Act ’ provides furtherevidence of the need for smart, integrated IT solutions that are effectively and efficientlyimplemented and maintained. The successful implementation and maintenance of an effectivesystem results from IT solutions that are expertly intertwined with process, management andpeople. Herein lays the key to prosperously managing the business of healthcare. The 2010 healthcare reform confirms the governments spotlight on quality, measurement,transparency and outcomes through the use of regulations, reporting, incentives and penalties.Additionally, more information will be publically available and consumers will become savvier atunderstanding the implications of a bottom percentile result. Furthermore, healthcare players must respond tothese themes in an environment of decliningreimbursement (Medicare spending will be reduced by We believe that majoralmost $500 billion over the next 10 years) and a greater change is inevitablenumber of insured (an estimate 32 million) with an because of the economicincreased number of coverage choices. dynamics including the Pay for performance is now inevitable, along with proliferation and increasingbundled payments etc.; the days of fee for service are in complexity of healthcarerapid decline. Healthcare providers will need to become transactions, consumerism,more creative and innovative in the funding and deliveryof their services in order to survive. and the rising importance ofAs individual insurance coverage grows, payers will be financial risk management.driven to develop new products and demand for doctors’ 1 Ephor Group | 1 (800) 379-9330 | www.ephorgroup.com | 24 Greenway Plaza Suite 440 | Houston, TX 77046
  2. 2. visits will increase (especially in the primary care arena).All sectors of healthcare will have to collaborate in order to prosper. Systems to capture and track data will need to become more sophisticated and userfriendly to allow organizations and ‘patients’ to easily track, measure and understand theeffectiveness of services, coverage, payments, reimbursement etc. . ‘Smart’ integrated ITsolutions will help their users navigate the resulting increased complexities and provideinformation to develop new products (e.g. in the case of insurers) and services (in the case ofproviders) by capturing data across processes, and providing relevant and meaningful businessintelligence. Furthermore, adaptability to change will be essential, as, although the government hasoutlined a plan, there are many details of the bill yet to be defined.Introduction: The traditional predictions regarding Healthcare reform ishealth care industry trends have been overshadowed by dependant upon adoptionthe continual discussion about health care industry and advances in health IT toreform, which appears to be a moving target. There is transform the US healthno clear path to systemic change in the healthcare while improving quality ofindustry, and decades of attempted reform have only care, safety, control,contributed to the spiraling cost of healthcare. Thecomplexity of the industry, the fee-for- service knowledge while reducingreimbursement system, the current misalignment of costs and risks.economic incentives, the structure of the deliverysystem, and the lack of innovation and political will suggest that the debate over rising costs andinefficiencies will continue for years to come. Reducing the costs of health care services has been and will continue to be the underlyingobjective of both legislative and executive branches of Federal and State governments in 2010and beyond. However, the complexities of restructuring health care could mean that a fullyimplemented, comprehensive solution may be a work in progress for many years into the future. This thesis proposes that information technology can aid the development of a holistic andintegrated approach to health care management, one that provides ongoing support tohealthcare practices/hospitals to reduce inefficiencies and costs. 2 Ephor Group | 1 (800) 379-9330 | www.ephorgroup.com | 24 Greenway Plaza Suite 440 | Houston, TX 77046
  3. 3. The U.S. Health Care Industry Today Healthcare costs continue to outpace the rate of inflation. However, since 2003 thepercentage rate of increases has diminished each year. According to employers and health plans,this trend is predicted to level off, and premium increases should be expected in 2010 andbeyond. The current healthcare environment is characterized by increasing revenue pressure,rising costs, declining reimbursement, and increasing regulatory and compliance integrity withan emphasis on patient safety and confidentiality. A view of the problem is outlined below in anexcerpt from the report “Cutting Red Tape in Health Care”, by the CALPIRG Education Fund: “California’s health care system is broken. Costs are rising faster than either inflation or wages, and wasteful spending is a major culprit. Inefficient and duplicative administrative systems force doctors and hospitals to spend more time and money on administrative support than is necessary, which increases costs to patients. However, by following the example of other states and streamlining key processes such as insurance billing and payment and physician credentialing at hospitals—providers and payers in California can collectively save hundreds of millions of dollars annually and help lower the cost of health care. Complicated billing practices and administrative systems result in grossly inefficient communication between physicians, hospitals and insurers and lead to higher-cost care for patients. Physicians’ offices spend large amounts of administrative time on getting paid for the care they provide. In California doctors’ offices, billing and insurance-related costs account for more than half of all administrative spending, or 14 percent of total office revenues. Insurers share the burden of inefficient administrative processes. In California, 21 percent of private insurer health care spending goes to billing and insurance-related costs instead of direct patient care. This is the rough equivalent of $9 billion, or 5.4 percent of total yearly health care spending statewide.” Based on the above trends, the primary emphasis for healthcare organizations next year willbe on reducing costs and creating greater value in the health system. This focus will have adomino effect from one sector to another and redefine roles, responsibilities and relationships. 3 Ephor Group | 1 (800) 379-9330 | www.ephorgroup.com | 24 Greenway Plaza Suite 440 | Houston, TX 77046
  4. 4. Healthcare Trends for 2010 and BeyondIn an attempt to reduce costs and create greater value, trends to be expected in the comingyears include: i. Cost containment. Industry-wide, intense efforts to reduce healthcare costs. ii. Increased reliance on information technology. Healthcare IT expansion, technology and telecommunications companies are aggressively capturing a growing share of the healthcare business. iii. Changes in patient behavior and expectations. Consumers are taking a more involved role in managing their health. The internet has provided consumers with access to the same reports as hospital CEOs and other health care leaders. This savvy patient population will search and compare the data before making health care decisions. iv. Accessibility. An increase in the number and scope of services offered by work-site and retail health clinics and home health services, as well as other technology-enabled delivery such as e-mail, tele-health and remote patient monitoring. v. Transparency. At all levels and between multiple constituents. vi. Physician Integration. The percent of hospitals employing physicians has nearly doubled since 1994, and it is expected that this trend will continue in 2010 as physicians seek greater stability and electronic connectivity.vii. Improving the quality and safety of patient care. Increasingly, insurance companies will measure hospitals by their performance and will move toward a “pay for performance” method for dispensing reimbursements.viii. Community health. A new social responsibility, it is supported by employers, health care leaders and community leaders getting funds from the government for promoting community health1. ix. Shortage of healthcare professionals. This will be of particular importance as the “mandates” associated with “Healthcare Reform” become a reality. x. Decreasing reimbursement rates to providers. As a result of enhanced utilization management and further cost containment initiatives, by all payors.1 Manos 2009 4 Ephor Group | 1 (800) 379-9330 | www.ephorgroup.com | 24 Greenway Plaza Suite 440 | Houston, TX 77046
  5. 5. The Case for Improved Information Technology In all of the above trends, it is apparent that connectivity and technology play critical roles inand are fundamental requirements to reducing the cost of administration and compliance.Innovations in technology are increasingly prevalent in the management of healthcare, and alsoin clinical areas2. For example, clinical advances have already permitted many formerlyinpatient services to be offered on an outpatient or even ambulatory basis. More changes are on the horizon. The pressure to implement electronic medical records(EMR) will continue to force change during the coming months, in both physician practices andhospital settings. Because saving time means saving money, innovative information systemsand medical equipment will be sought by medical offices in an effort to perform common tasksmore quickly and efficiently. Physician practices and hospitals that prosper in this increasingly challenging environmentwill be required to be more adaptable to technology, to business process changes, and tooutsourcing capabilities. Strategy development, effective implementation, specific performancemeasurement, and performance accountability will be required of physicians, executives, andstaff in every delivery setting. Improving healthcare information technology is one way to make this process easier forhealthcare providers and networks. Consider the following patient episode; a typical medicaloffice visit and insurance billing follow-up required in America today: “A middle-aged woman goes to her doctor’s office with early symptoms of heart disease. Once her symptoms are diagnosed, office staff will have to spend time determining what kind of care is covered by her insurance. To prescribe a cholesterol medication, the woman’s doctor may spend time looking up which drugs are covered by her insurance plan, and determine the amount of the co-pay for the drug. In many cases, however, her doctor might be too busy to check, and the woman would not find out that her drug was not covered until she got to her pharmacy. This could then cause a lengthy back-and-forth between her doctor and pharmacist, for which neither would be compensated. “Then, in order to be paid for the care the woman received, her doctor’s staff must complete billing forms that require specific coverage information to be provided. Despite a limited degree of federal standardization, this information is coded in different ways, depending on both her insurance company and on the specific benefits and co-pays of her insurance plan. Accurately completing the forms demands large amounts of staff time, and may require the services of billing2 Plunkett 2009 5 Ephor Group | 1 (800) 379-9330 | www.ephorgroup.com | 24 Greenway Plaza Suite 440 | Houston, TX 77046
  6. 6. specialists or claims clearinghouses—at additional cost to the doctor. “Once the woman’s claim has been successfully completed, it must be submitted to her insurer. In some cases it might be submitted electronically; in others, the claim might be written or printed and then faxed. The woman’s insurer then has to pay someone to handle the received form and send it to the correct internal location, a process whose efficiency varies greatly by insurer. Meanwhile, her doctor’s office must use staff time to track the claim and ensure it gets paid, and deal with the fact that each service on the woman’s claim may have a different payment schedule, divided into three parts: what the insurer pays, what the woman pays, and what the doctor has agreed to cover. The woman herself may not learn for weeks whether or not her claim has been accepted. “Further, if there is any dispute between the physician and the insurer, it is the patient who will have to take the time to sort out the mess—a frustrating and often time consuming process. All for a $75 payment and probably an unprofitable office visit. “The costs of these many steps, repeated for hundreds of patients per week in thousands of clinics around the state, add up quickly. Doctors’ offices, billing and insurance-related costs account for more than half of all administrative spending, or 14 percent of total office revenues. “The costs of billing and claims processing are not limited to physicians alone: insurers and hospitals share the burden of these labyrinthine administrative processes. It is estimated that 21 percent of private insurer health care spending goes to administrative costs instead of direct patient care. This is the rough equivalent of $9 billion, or 5.4 percent of total yearly health care spending in California alone. Hospitals bear fewer (though by no means negligible) costs, at 7 to 11 percent of their total revenues.” “21 percent of private insurer health care spending goes to administrative costsinstead of direct patient care.” Administrative costs can and should be cut. Improvementsin information technology will necessarily be at the forefront of changes in the delivery ofmedical services. At present, however, the more visible attempts at reducing the cost andinefficiency of health care administration (for example, the full adoption of an Electronic MedicalRecord system by a physician practice) fall far short of creating an efficient, integrated, high-performing platform. This lack of efficiency or “point solution orientation” is due in part to a lack ofcommunication across the design, installation and management of the systems. Generally,information systems are purchased from one vendor, installed by another, supported or hostedby yet another, and then in many instances utilized by an outsource provider. Therefore how 6 Ephor Group | 1 (800) 379-9330 | www.ephorgroup.com | 24 Greenway Plaza Suite 440 | Houston, TX 77046
  7. 7. can any one vendor demonstrate a comprehensive understanding of the medical practice, itsprocesses, its objectives or its inefficiencies? Therefore the need for holistic and bundledtechnology enhanced service offerings is present. Best-of-breed IT providers In that practice management systems, billing will to streamline costs,systems, IT support, IT hosting, finance and accounting, create process excellencesupplies/inventory, maintenance/staffing, and while increasing responsescheduling/quality improvement/CRM are all generally and reporting.piecemeal purchases provided by different vendors,attempts by medical practices to manage each functionare generally ad hoc and not integrated. IT, Operations and Supply Chain strategies, decisions,implementations and management suffer as a result. Processes are not optimized because thereis no organizing framework or systems discipline in the design and procurement of thesefunctions. Systems are in silos and there is no ongoing implementation and process support forthese services. Furthermore, many practice managers don’t have the time and/or appropriatequalifications, education or experience to perform this support function.Information Technology: The Time to Change is Now According to McKinsey & Co. the U.S. healthcare payment system, which processed $1.9trillion in 2007, is ripe for transformation. “…the system is inefficient, consuming 15 percent or more of each dollar spent on health care, compared with about 2 percent for the payment system in retailing. Expenditures on the processing of bills, claims and payments: bad debt: and other transactions total more than $300 billion a year.” Change is happening in health care IT already, however clearly not rapid or systematicenough. At present, technology and telecommunications companies are partnering thehealthcare sector in a significant way. The federal government’s America Recovery andReinvestment Act is a boost for the IT sector. Doctors and other providers have entered in therace to benefit from the Act by adopting healthcare IT in 2010 to qualify for the bonuses in20113.3 Manos 2009 7 Ephor Group | 1 (800) 379-9330 | www.ephorgroup.com | 24 Greenway Plaza Suite 440 | Houston, TX 77046
  8. 8. The investment potential in healthcare IT and technology-enabled healthcare businessservices is significant. Recent trends and developments demonstrate that informationtechnology change is coming to the healthcare industry. IBM’s acquisition of Cognos, and thedevelopment of business intelligence software for fulfilling patients’ demand of timely andcorrect reporting, may soon bring the following advances: • The promotion of performance management through healthcare analytics, which should increase the overall efficiency of hospitals tremendously; • The development of a repository of all data, and a structure provided to it, which, through the application of business intelligence tools, can help in reducing costs, informing consumers, and delivering better patient outcomes; • The reduction of workflow issues between all providers, payors and administrators; • The implementation of demographic computing; • The creation of customized demographic dashboard portals with real time information about patients, which can be accessed by doctors and nurses; • The availability of meaningful data mining, making it possible to move from static reporting to real time data mining, enabling prediction and modeling of future costs and quality of systems on historical data; ultimately allowing insurers and practitioners to compete on quality4. The federal reforms aimed at the insurance industry, reimbursement, grant programs, andmore suggest that the US is taking focus and making progress in healthcare IT. However, theimplementation of change is being delayed by the outcome of healthcare reform. Decades ofattempted reform have only contributed to the spiraling cost of healthcare. At present, there isno clear path to systemic change in the healthcare industry.4 Plas & Klein 2008 8 Ephor Group | 1 (800) 379-9330 | www.ephorgroup.com | 24 Greenway Plaza Suite 440 | Houston, TX 77046
  9. 9. How Do I Position My IT Business to Maximize Value? Operational Strategic Established Measurement and Metric Systems beyond Financial Measures. Recurring Revenue Model. The Business Process is more Salient then One Person or Core competencies identified and creating Team. value. Top quartile growth created through market differentiation at Positioned as attractive platform for service level. additional investment or as a strategic Portfolio of Distribution Venues are Proven: Effective and acquisition. Proven “Go-to-Market.” Balanced portfolio of revenues: service End-user Customer Satisfaction is a Critical Brand Equity. offerings, industries served and customer Compensation has a Variable Cost Component and Supports the concentrations. Business Objectives. Unique Attributes of the Business Model are Illustrates the Attributes of Effective Risk Management. Brand Equities. Outsourcing is Part of the Business Model. Illustrates a Results Oriented Culture.How Do I Position My IT Business to Create Wealth? Market  • Acqusition platform  • Become "need‐to‐have" capability for  others to reach customer base Leadership •Defensible market niche •Excellent  growth prospects • Above average margins • Higher multiples attributed to larger  Scale firms • Ability to add financial leverage • Proven ability to generate consistent  performance Strong  • Focused strategy & vision • Clear leadership with strong  supporting team – – well defined roles Leadership • No reliance on owner to achieve  objectives 9Ephor Group | 1 (800) 379-9330 | www.ephorgroup.com | 24 Greenway Plaza Suite 440 | Houston, TX 77046
  10. 10. Factors Impacting Valuation(and thus Wealth Creation) 1. Carve out dominance; 2. Quantity and quality of recurring revenues; 3. Profitability of the platform; 4. Scalable operating infrastructure to ensure performance is maximized, cost-efficient and delivers on the full promise of the value-proposition; plus 5. Company has best-in-class customer acquisition economics, has significant alternative distribution, and is realizing the benefits of having achieved “Branded Franchise Effects.”Enterprise Revenue Multiple Valuation LTM EBITDA EBITDA Services Sector 2006 2007 2008 2009 GM Margin Avg Business Process Outsourcing 1.3x 1.2x 1.2x 1.2x 39% 14% 8.0x Outsourcing 1.2x 1.1x 1.2x 0.9x 27% 13% 7.3x Consulting 1.9x 1.7x 1.1x 1.0x 41% 15% 7.1x Systems Integration 0.7x 0.7x 0.9x 0.2x 27% 7% 5.5x Staffing 0.5x 0.4x 0.2x 0.2x 23% 4% 7.4x 10 Ephor Group | 1 (800) 379-9330 | www.ephorgroup.com | 24 Greenway Plaza Suite 440 | Houston, TX 77046
  11. 11. Offering Bundles 1. Managed Services a. Attributes i. IT management us automated and streamlined. ii. Consulting occurs at client offices. iii. Shared Services. iv. Technology (beyond ticketing system) behind the veil. 1. Data Center and other 3rd party software utilized by IT provider b. Services i. Help Desk ii. Network Management iii. IT Consulting iv. Reporting and analytics v. Business Intelligence 2. Back-Office Platform a. Attributes i. Technology IT Management Platform as a service including infrastructure platform ii. Who owns the technology? iii. Shared Services b. Services i. Data Center ii. Hosting iii. Backup iv. Remote Network Management v. Remote Monitoring vi. Security 3. Hybrid a. Attributes i. Onsite staffing model coupled with remote management ii. Client owns technology. b. Services i. Data Center ii. Hosting iii. Backup iv. Remote Network Management v. Remote MonitoringSystems (Point Solution) Implementation will be less and less prevalent. 11 Ephor Group | 1 (800) 379-9330 | www.ephorgroup.com | 24 Greenway Plaza Suite 440 | Houston, TX 77046
  12. 12. Key Performance IndicatorsImprovement Median Goal Measures Top Performers Initiative Performers • # of Raving Fans (i.e. customers that provide • <30 • 30+ in Predictable, cost-Revenue testimonials and referrals) secondary effective revenue. and tertiary markets • Revenue per Operations Employee • $70k • $150k+Operations Efficiency and scale. • Profit Per Employee • $6k • $20k+ • Quality Scores: Client satisfaction/At-risk • NA • 95%+ clients • Revenue Under Management Per Account Manager Per Month • $15k • $25k+ Motivated, Capable ofWorkforce Growth, and Productive. • Days from onboarding to references • NA • 90 days (marketing results realized) • % of operations with process mapping and • NA • 90%+ documented instructionManagement Platform for growth. • NA • YESScience • Balanced portfolio of revenue streams • NA • 90%+ • % of ‘A’ and ‘B Players’ Process scalability is implemented when key results and activity measurements and indicators are benchmarked and outperform the competition. 12 Ephor Group | 1 (800) 379-9330 | www.ephorgroup.com | 24 Greenway Plaza Suite 440 | Houston, TX 77046
  13. 13. Conclusion In the context of managing the healthcare business more effectively in the U.S.among the stakeholders Ephor Group believes that better deployment and managementof information technology through a holistic and integrated approach will offer significantimprovements in administrative efficiency of the healthcare delivery system, as well asprovide significant financial savings to providers. Healthcare IT and technology enabled services are only as good as theimplementation, utilization, management and support of the tools deployed. Ourcollective experience in the healthcare industry and our deep understanding of theunsatisfied and underserved needs across the healthcare stakeholders; suggests aninvestment opportunity in bringing together healthcare technology, processenhancement and business services to holistically address the macro and microeconomic challenges. The result being a more efficient and comprehensive supportinfrastructure for doctors, hospitals, health plans, patients, and payors. By empowering complex systems to work smoothly, we believe we can provide thecomplicated healthcare system with much needed structure, process and comprehensivefunctionality. We believe that by focusing on the non-clinical issues of improvingtechnology, operations and supply chain management, we can provide an opportunity tocreate value in the uncertain and dynamic industry of healthcare delivery. Until there is a comprehensive approach to implementation, support andmanagement of Technology, Operations and Supply Chain investments in healthcare IT,improvements will continue to fall short of the opportunity to drive real, sustainableimprovements in the cost of healthcare administration. Ephor believes that a significantinvestment opportunity exists by bringing together companies providing complimentaryproducts and services that build a comprehensive, well orchestrated, integrated solutionaddressing the Technology, Operations and Supply Chain needs of the healthcare tradingpartners across the U.S. 13 Ephor Group | 1 (800) 379-9330 | www.ephorgroup.com | 24 Greenway Plaza Suite 440 | Houston, TX 77046