A Tsunami of change are hitting the health plan IT world, Healthcare Reform, HIX, ICD-10, ACA and MLR are driving CIOs of health plans to relook at their IT portfolio and IT spend with a microscope. CFO’s are asking CIOs to reduce IT spend and be more productive. IT budget typically hits the Sales, General and Admin costs (SG&A) costs, a health plan’s profitability is directly dependent on reducing SG&A and guess what – CIO budgets are under the gun. In this article we share 7 ideas for Health Plan CIO’s to reduce IT Spend.
1. Benchmark : Like the saying goes, if you cannot measure you cannot improve. So look at your IT spend and find out what is the % of revenue it constitutes. Typically a best in class IT shop would have an IT budget of around 1-1.5% of revenue of the health plan. If you are over that – You know you have fat to cut, projects to trim and programs to optimize.
2. Blended Rate: Since labor constitutes majority of the spend, look at those individual contractors that your PMs and Directors love, they can add up quite a bit. Generally a $75/hr blended rate for projects (total project spend/number of hours) is considered a healthy mix. Set targets for your VPs and Directors to hit a $75 blended rate for all projects. You will be surprised how creative your teams can get!
3. Project Managers and Business Analysts: These are the folks that feed your IT teams work. Business Analysts gather requirements from your business users and your PMs allocate the work to your IT teams. If you can optimize the BA and PM function it can lead to significant reduction in costs down the lane and eliminate waste. Do you have a centralized PM and BA function? If not – time to consider action, this is also the place where you typically have a lot of individual high priced contractors, look at outsourcing these functions or consolidating these with strategic vendors. It will go a long way in your costs savings journey!
4. Testing : “In god we trust and everything else we test”, well the big question is do you really need to test everything? Also do you have to do all the testing onsite in your office? Typical blended rates for testing if you were to outsource can be as low as $20-$27/hrs, consider outsourcing testing, having a third party to test is better than having your own teams test anyways ! Move user acceptance testing from business to your IT team, you will be a hero with your business.
5. Strategic Vendors : We know every company has a few , have you seen their sales guys? They are compensated to sell more, so cost savings are not in their best interest. Challenge the strategic vendors to come back with committed savings and productivity. Usually they have a lot of margin and will not mind dropping a few % points to keep your business. Run a RFP process and get the latest benchmarks. If they truly consider you strategic they will figure out a way to reduce their price.
6.Keep the Lights On: Do your employees still carry pagers and support your systems? If the answer is yes, you are losing competitive edge by a few % points purely because your top competitor is saving a ton of money and using that for innovation and higher value projects by outsourcing the keep the lights on function. Most of the health plans outsource their production support to low cost countries like India and Philippines. You can easily save over 30% on your keep the lights expense budgets if you do this one thing.
7. Commodity Service: Infrastructure and Data-centers are commodities now, you can buy them on demand, are you still running your own infrastructure and data center services? Easily your costs would be a few % points higher than the best in class. Why invest in building a vacation home when you can rent a better one every time you need one? My advice would be to consider outsourcing IT Infrastructure management as soon as possible and have a vendor deal with the stress. You will have more time to solve health plan problems instead of IT Infrastructure problems!
In a nut shell, health plan industry has lagged behind the manufacturing , retail and financial sector in adopting best practices in IT. Legacy applications and antiquated IT Infrastructure has been the norm and the time to change is now. To thrive in the consumer centric health plan market, you need better IT tools at the right price. The above ideas hopefully help address some of your cost issues.
Sunny Awdal is the editor of DistilNFO Payer Advisory. You can reach him at sunny.awdal@distilnfo.com