Eye on the States: The fine print of state health care BPO

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By Thomas Davies

By Thomas Davies

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I bet terms such as claims entry, system takeover, MMIS, fiscal agent or entitlements mean nothing to you. But multiyear contracts, recurring revenue, mega deals, ongoing operations, and guaranteed federally financed budgets ? now, there is language everyone understands.

I bet terms such as claims entry, system takeover, MMIS, fiscal agent or entitlements mean nothing to you. But multiyear contracts, recurring revenue, mega deals, ongoing operations, and guaranteed federally financed budgets ? now, there is language everyone understands.All these terms describe one of the oldest, largest, most competitive markets in state government today: health care business process outsourcing. The foundation of the business is Medicaid claims processing, which is a federally funded, state administered, health care insurance program for the elderly, blind and disabled. Add to this other populations served by state government ? mainly the uninsured, children and public employees ? and you have a group far larger than Medicare recipients, and growing faster as well. The state health care BPO market is instructive for companies that want to be in the BPO business or expand the BPO business they have. From where I sit, these are the competitive realities of this market:Thomas Davies is senior vice president at Current Analysis, Inc. in Sterling, Va. His e-mail address is tdavies@currentanalysis.com.

Thomas Davies










  • Health care is the business of government. Medicaid is the fastest-rising budget expenditure, according to the National Association of State Budget Officers, representing about 22 percent, or more than $270 billion, of annual state spending. As the states try to get control of their Medicaid budgets, they are adding functionality to the scope of health care BPO contracts, looking to industry for innovative ideas on pressing needs such as cost containment. This is only furthering the market need for one prime contractor responsible for delivering health care program and administrative performance.

  • You're running with the big boys in this market, and they play for keeps. EDS Corp. is the pioneer that built a very strong ? once thought to be insurmountable ? market position over the past three decades. Then there is Affiliated Computer Services Inc., which came from nowhere a few years ago and loves to jump in and take everyone else's business and which, by the way, it is doing quite well with recent wins in North Carolina and Texas. EDS and ACS are locked in a head-to-head struggle for market leadership in the 21st century.And don't forget Unisys Corp., also a long-term, state government health care player, which isn't conceding a single point of market share to anyone

  • Stick a crowbar in your wallet. You're not going to play in this market without investing. ACS' successful market entry turned on several strategic acquisitions. Before any state will place its bets on you, you need certified health care systems, a proven track record, trusted relationships and experienced account teams. How can you ever realistically put all this in place from where you're currently situated? Well ...

  • Partnering goes a long way. A one time-honored practice for entering this market is as a subcontractor. Many can't believe EDS started out in this market as a subcontractor. Today, companies such as Accenture Ltd. and IBM Corp. are partnering their way in. With so many contracts being re-competed over the next year or two, everyone will be stretched for resources and will need all the competitive edge they can muster.

  • BPO means technology. Too often, companies look at the state government health care market and think they can drive customer value without having best-in-class technology. This BPO market has been around a long time, but by no means is it mature. Technology-enabled business process innovation is one key to creating new customer value as well as driving out costs. And the transition to Internet-based technology architectures will open up the market to new entrants.


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