Webinar Deck: The Changing Face of IT Outsourcing in the Healthcare Payer Market: Don't Miss the Sailing Ship

The Changing Face of IT Outsourcing in the
Healthcare Payer Market: Don't Miss the Sailing Ship
June 5, 2013

Proprietary & Confidential. © 2013, Everest Global, Inc. 2
Introductions
Jimit Arora
Vice President
jimit.arora@everestgrp.com
Abhishek Singh
Senior Analyst
abhishek.singh@everestgrp.com

Context setting
Sources for today’s webinar
Focus of this webinar
 Present the current state analysis and future outlook of the healthcare payer
industry from a technology priorities and IT outsourcing perspective
 Discuss implications for healthcare payers and service providers
Transaction
Intelligence
Healthcare IT services
research
 Summary insights from
healthcare outsourcing
research program
 Fact-based research
covering healthcare IT
services
 Largest database of
outsourcing
transactions
+

Presentation topics
Changing face
of ITO in the
payer industry
Are service
providers
prepared to
board this
sailing ship?
Current state
of ITO in the
healthcare
industry
 Market size
 Growth
 Outsourcing activity
Wrap up and
Q&A

25%
24%
14%
9%
7%
7%
5% 4%
2% 3% 100%
While the financial sector and the government contribute to
half of the IT services market size, healthcare holds promise
of being the new growth engine
Global IT services market size distribution by industry vertical
2012; Percentage
100% = US$530 billion
BFSI1 Public Manufac-
turing
Energy,
Utilities, &
Chemical
Retail,
Distribu-
tion, &
CPG2
Telecom Electronics
& Hi-tech
Media &
Entertain-
ment
Healthcare Others Total
Healthcare is likely to
be the next growth
driver for the IT
outsourcing industry
A few providers
recognize segments
such as public
healthcare revenue
under “public sector”
1 Banking, financial services, and insurance
2 Consumer packaged goods
Source: Everest Group (2013)

The last three years have witnessed broad-based decline in
transactions across regions and verticals, except in
healthcare
North America1
UK
Outsourcing deals announced
Number of transactions
Rest of Europe
Rest of World2
733 710 623
283 373
302
522 475
473
440 382
317
2010 2011 2012
1,978 1,9403
1,7153 BFSI MDR
Public
sector Healthcare Others
2012 performance compared to 2011
1 Excludes Mexico
2 Includes Asia-Pacific, Latin America, and Africa
3 Includes deal data shared by service providers

Going forward, what trend in volumes do you expect
to see in outsourcing activity in the healthcare IT
industry?
0%
7%
7%
49%
38%
Significant decrease
Slight decrease
No change
Slight increase
Significant increase
Source: Live polling conducted during the “The Changing Face of IT Outsourcing in the Healthcare Payer Market” webinar on June 5, 2013

Presentation topics
Changing face
of ITO in the
payer industry
Are service
providers
prepared to
board this
sailing ship?
Current state
of ITO in the
healthcare
industry
 Industry drivers
 Technology
implications
 Technology
adoption phases
Wrap up and
Q&A

Payers
Strategy
Operations Technology
Government
• Medicare
• Medicaid
• Both Groups
• Small groups
• Large employers
Individual
The U.S. payer industry is at a critical juncture in history as
external and internal forces are creating significant impact
across the value chain
 M&A and consolidation
 New channels (HIX)
 Organizational design / talent planning
 Product development/diversification
 Customer experience management
 Healthcare mobility
 Healthcare analytics
 Infrastructure modernization
 Privacy and security
 Enterprise systems
 Commercial operations
 Provider network/data management
 Ecosystem health care mgmt
 Compliance and risk management
 Vendor portfolio management
 Consolidation

3. Claims
transformation
Five forces
driving health
insurance
While five key forces are driving investments and technology
priorities of the payer industry currently…
Shift from the traditional B2B model
to B2C model necessitating
investments in areas, such as
mobility, customer portals, social
media, and analytics to attract,
retain, and grow members
Compliance requirements (e.g.,
HIPAA 5010, ICD-10 conversion)
and regulatory reform (e.g., systems
integration for Health Information
Exchange) are principal catalysts for
technology demand for health
insurers
Need for improvement in claims management to raise
efficiency, reduce costs, prevent fraud, and manage minimum
Medical Loss Ratio (MLR) mandates
Technology investments to
enable effective prevention
and appropriate care;
driving analytics to
harness claims data,
patient data, clinical data,
and R&D data to improve
care quality
Post-merger integration among
healthcare companies

…significant tectonic shifts such as payer-provider
convergence, are taking the discourse on payer strategies
beyond the current mandate
AcquireManage
PayerProvider
Payers acquiring
providers
ACOs assuming
financial risks
Payers managing
ACOs
Joint ventures
between payers
and providers
Blurring lines between payers and providers

Going forward, payers will need to align their strategic focus
along five specific themes that will be critical to maintaining
their central position in the U.S. healthcare eco-system
Transfer of risk from
payers to providers
Consolidation between
risk insurance and care
delivery
Personalized care and
the growing individuals
market
Increasingly
competitive markets
and emerging new
sales channels
Coordination
Contingency Consolidation
Consumerization Competition
Central to the themes is “coordination,” which will require payers to handle the implications of the other four themes while
managing other stakeholders in the healthcare industry, that include the federal agencies (government), other payers, providers
and the end consumer
5Cs of changing payer imperatives
Stakeholders in the
U.S. healthcare
eco-system
C Payer imperatives
Competition
Contingency
1
Consolidation
2
Coordination
3
Consumerization
4
5

These five themes alter the industry dynamic and create
significant business and technology implications for payer
organizations
Contingency Consolidation Coordination Competition Consumerization
 Shift of risk from payers to providers and payers acquiring care delivery operations
 Diversifying operations of payer due to integration of care financing with care delivery operations
 Managing and collaborating with key stakeholders
 Increased competition due state-mandated QHPs and health insurance exchanges
 Personalized care delivery and growing adoption of defined contribution plans by large employers
 Implementing value-driven changes in sales and product strategy
 Managing operational integration
 Organizational design and talent planning
 Product development and diversification
 Revamp commercial operations
 Sales channel optimization
 Investments into HIX and opportunity cost of remodeling the sales channel structure
 Healthcare mobility
 Business-financial analytics
 Infrastructure modernization
 Device support services
 Network services
 Database services
ThemeBackground
Business
implications
Technology
implications
NOT EXHAUSTIVE

Analysis of the technology implications highlights a number of
priority services that payers need to increase their focus on
Healthcare
Mobility
Business-
Financial
Analytics
Infrastructure
Modernization
Device support
services
Network services
Data security
services
Web-application
development
Data access and
integration services
HIX Infrastructure
support
Application hosting
Claims data
management (Big
Data)
Electronic health
records
Medical data
access, encryption
and reporting
Smart analytics
Recovery and
reconciliation
Electronic health
records
Infrastructure
transformation
Cloud-based
infrastructure
Mobile and wireless
accessibility
Nodal infrastructure
for HIX
BYOD device
support
Cloud-based
infrastructure
Mobile devices
support
Ecosystem device
support
Other device
support
Provider network
management
HIX support
Pharmacy benefit
management
network
Claims systems
network
Educational system
support
Smart-tiered
databases – data
modeling, analytics
Big data storage
Application hosting
Data warehousing
Application servers
Database services
NOT EXHAUSTIVE

Success across these priorities requires knowledge of how
the broad technology stacks are expected to evolve over the
next 5 to 10 years
Both payers and service providers need to start preparing or investing for the “spurt” phase wherein industry maneuverings will amplify into
a steep demand for the identified technology stacks
Infrastructure
modernization
Business-
financial
Analytics
Mobility and
Device support
services
Healthcare opportunities
Network
services
Database
services
20252013
Phases and duration of technology adoption
Spurt2016 2019 ConsolidationPrepare
Year
Cumulative
size of
investment/
opportunity
ILLUSTRATIVE

Implications for payers
Consumer driven interfaces, systems, and products will drive both the group
and individual segment business
Create a robust strategy that aligns IT with the needs of an operating model
that will have merged elements of both care financing and care delivery
Despite the focus on the current reform agenda, payers need to plan for the
business and technology implications of the new normal in healthcare
Prioritize investments across technology focus areas and identify partners
that can assist with the technology adoption road map
Payers need to take the lead in building a technology-driven healthcare
ecosystem

Do you agree when it is said that the healthcare IT
industry is at the same cusp of opportunity as BFSI
was in the late 90s?
59%
5%
36%
Yes
No
Can’t say / Unfair to compare

Presentation topics
Changing face
of ITO in the
payer industry
Are service
providers
prepared to
board this
sailing ship?
Current state
of ITO in the
healthcare
industry
 Everest Group
PEAK matrix
evaluations
 Need for balanced
portfolio of offerings
Wrap up and
Q&A

Service providers assessed on 2012 PEAK Matrix
Assessment based on:
 RFIs submitted by service providers1
 Everest Group Transactions Intelligence database
 Service provider disclosures and interviews
 Everest Group’s interaction with healthcare payer
buyers
Criteria for inclusion in the
assessment
 Success in large payer AO
relationships, i.e.,
– >US$25 million TCV
– >3 years relationship
duration
– Active as of December
31, 2011
 Everest Group’s
experience and RFI
response
1 Assessment for Accenture and IBM GS is based on Everest Group’s proprietary Transaction Intelligence (TI) database, service providers’ disclosures, and
Everest Group’s interactions with healthcare payer buyers
Service provider outreach (partial list)
Each year, Everest Group evaluates the capabilities of
service providers in the payer and provider ITO space

Everest Group Performance | Experience | Ability | Knowledge (PEAK) Matrix for payer AO
Everest Group PEAK Matrix
Healthcare Payer Applications Outsourcing
Low High
Delivery capability
(Scale, scope, domain investments, and delivery footprint)
MphasiS
Infosys
TCS
Dell Services
IBM GS
Accenture
Cognizant
Leaders
Major Contenders
CGI
Emerging Players
Leader
Major Contender
Emerging Player
Marketsuccess
High
Low

Everest Group Performance | Experience | Ability | Knowledge (PEAK) Matrix for large provider AO relationships1
1 PEAK Matrix specific to large (>US$25 million TCV), multi-year (>three years) application outsourcing relationships within the healthcare provider sector
Major Contender
Emerging Player
LeaderHigh
Low
Low HighDelivery capability
(Scale, scope, domain investments, and delivery footprint)
Leaders
Major Contenders
Emerging Players
Marketsuccess
(Transactionactivity)
Mahindra Satyam
Dell Services
CSCAccenture
HP ES
CGI
Cognizant
IBM
Everest Group PEAK Matrix
Healthcare Provider Applications Outsourcing

In the healthcare market, it is becoming important for service
providers to have capabilities across the payer provider
continuum
Service provider Healthcare payers Healthcare providers
Accenture Leader Leader
CGI Major Contender Major Contender
Cognizant Leader Major Contender
Dell Services Major Contender Leader
IBM Leader Major Contender
Integrated delivery capability for Applications Outsourcing among Payers and Providers
 The growing trend towards payer provider convergence has made it near mandatory for
service providers to develop capabilities that are strong across both sub-segments
 However, observing the payer and provider PEAK Matrix evaluations in conjunction throws
up very few choices that are strong across the healthcare eco-system

Implications for service providers
Prepare for heightened competitive intensity given healthcare’s focus as one of
the highest priority segments for growth among all major service providers
Invest in building a broad spectrum of integrated capabilities across the payer-
provider IT services continuum
Refine the go-to-market strategy (across sales, solutioning, and delivery) to
align with the new technology demand profile in healthcare IT services
Pure-play and niche healthcare service providers will have to converge either
through vertical integration, acquisitions or strategic partnerships

Given the significant changes taking place in the
industry, what is the most important criteria that will
define success for service providers?
29%
6%
6%
58%
Broad-based expertise across the healthcare eco-system
Strong experience and success in payer IT industry
Global delivery capabilities (incl. offshoring)
Market leading healthcare platforms & solutions

Presentation topics
Changing face
of ITO in the
payer industry
Are service
providers
prepared to
board this
sailing ship?
Current state
of ITO in the
healthcare
industry
Wrap up and
Q&A
 Submit any
remaining questions

To ask a question during the Q&A session
 Click the question mark (Q&A) button located on right side of your screen. This opens Q&A
 Be sure to keep the default set to “send to All Panelists”
 Type your question in the box at the bottom of the Q&A box and click the send button
 Attendees will receive an email with instructions for downloading today’s presentation
 For advice or research on healthcare ITO, please contact:
– Jimit Arora, jimit.arora@everestgrp.com
– Abhishek Singh, abhishek.singh@everestgrp.com
Q&A
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