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Know Your Vendor

Many health care organizations have found it is more cost-effective and convenient to outsource some or all of their information technology (IT) or business processing functions to an outside vendor. Today, the projects that are receiving the most funding are those that improve customer service, increase transaction speed and efficiency, and help to reduce administrative costs. As a result, much of the current health care IT spending is going to core systems such as claims administration, medical management and financial management systems. 

However, due to pressures on budgets, organizations are being forced to consolidate their vendors to only the most strategic relationships. Selecting a vendor for this type of strategic commitment involves more than just capital and an analysis of technology. Many organizations today are looking more closely at vendors with a specific client-focused culture and service-oriented philosophy to ensure that their visions are properly aligned. Here are some guidelines on getting to "know your vendor" and assessing them on several critical factors:

Go beyond references. With whom does the company do business? Are they satisfied with the service, as well as the technology? If clients are willing to go the extra mile to tell their success stories, it's a good indication that they're satisfied with the service.

ROI and "soft" dollar savings. Many health care organizations are under intense pressure to make wise technology investments that show a return on investment (ROI) in a relatively short period of time. How have other clients fared on their ROIs? This is a difficult question, as many companies don't take the time to quantify returns, so also get a sense of "soft" dollar savings in the form of increased efficiency and productivity.

Administrative Savings. Currently, health care administrative costs represent 20 percent to 30 percent of health care spending, or up to $420 billion each year, with medical claims paperwork accounting for $250 billion. Health care organizations must look to vendors to help bring these costs under control. What experience does your vendor have in controlling claims and administrative expenses?

Business sense. Today, health care business leaders understand more about IT and business processing concepts than ever before. In the same vein, these leaders also expect vendors to have an in-depth knowledge of their industry and business processes. A limited amount of people exist with in-depth operational expertise in health care administration. As a result, partner with vendors who can supply this expertise along with the technical capabilities to effectively integrate critical administrative functions into the framework of their system. At the same time, systems should provide flexibility to adapt to your unique procedures and policies. While technology should integrate into your current workflow, it should also provide you with the latest best practices.

Performance metrics. There is a constant need to make functions run more smoothly and thereby cost-effectively. If a vendor does not measure efficiency and performance, it cannot manage or improve upon it. Ask your vendor what performance metrics they measure and why. How do these measurements compare to industry standards? Ask vendors what goals they set to improve these metrics? Do they survey clients on service issues that are important to them, and audit client expectations, perceptions and satisfaction levels? How do these client audits and surveys compare to the vendor's measurements? Are external perceptions in sync with internal objectives?

Consolidation of information and integration of systems. Ask your vendor what type of data interfaces they have in place, and what type of investments they've made in enterprise application integration solutions. Integration is a core component in delivering operational, administrative and cost efficiencies, and also to bringing together an organization's investments in different areas, such as claims processing, Internet protocols and industry EDI standards.

Provider and member satisfaction. Today, consumers, who are accustomed to a large degree of selection and convenience in other industries, are now demanding the same level of service from the health care industry. As health care is forced to further evolve toward "real" management of care and processes, information systems must be focused on eliminating the traditional "hassle" factors that have characterized managed care benefits. Does your vendor leverage automation to manage today's increasing complex transactions required by hybrid health plans and the ever evolving managed care market? Do the systems also help to improve clinical care, develop best practice guidelines and reduce financial risks for the benefit of all stakeholders?

Flexible solutions that "fit" ever-changing needs. Obviously, every organization has unique needs. Some companies value predictability in costs and others hold service levels above all else. In addition to the unique needs or individual organizations, few if any industries can match health care's rate of change. Health plans constantly review and change the benefits they offer. Providers constantly re-negotiate the terms and conditions of their contracts. Within this ever-changing environment, the predominant formula for success has been the ability to adapt. Vendors must be able to provide solutions that are flexible enough to adjust to this rate of change.

Providing business intelligence. Better data analysis can help health care organizations in a number of ways. Currently, many organizations have a difficult time substantiating their cost structure and determining the profit point in contracts. By incorporating data reporting and analytic tools, clients can have the information they need to make better business decisions that affect their bottom lines. Does your vendor perform time-consuming data queries for each report you request, or can you directly access the information you need when you need it? Are reports easy to produce with drill down capabilities to obtain relevant information? Has your vendor bundled a powerful set of reporting, analytical and information distribution tools into their products and services? Do these systems have an intuitive and user-friendly interface?

Security. Does your vendor provide a consistent level of information security management that addresses all points of vulnerability -- from people to policies to security systems? Make sure your vendors deliver a detailed information security and contingency plan.

IT Maintenance. Many companies hoping to reduce their IT spending have found that maintenance costs contribute a considerable amount. In response, many companies avoid having to buy or license expensive hardware and software programs that they would then need IT staff and resources to maintain in-house. Having a vendor that maintains the technology for you can be a crucial cost-saving measure. As a result, application service providers (ASPs) have made significant gains in popularity, as they not only save money on expensive and scarce IT resources, but also allow health care organizations to immediately reduce their maintenance costs.

Is your vendor committed to its technology? Look at the expected life of the technology your vendor offers, and confirm that there are signs that this vendor is committed to technology? Has your vendor made recent investments into improving their system? Has the vendor spent time architecting and implementing new innovations? Do they have goals in mind to further automate tasks, improve service or increase efficiency in important areas? Is the vendor more interested in developing the next big thing than in fine-tuning their core application? These are important questions to ask in determining if your vendor is committed to supporting the systems you're interested in.

While it's important to be diligent, the pressure to make the right decision and investment has lead many health care business leaders to analyze minute details, which significantly stall the selection or renewal of a vendor contract. Be sure to carefully identify your business goals. Start out with an analysis of your organization's short-term and long-term objectives. Is it to reduce IT costs, provide better service; or streamline business processes? Ultimately, technology vendors should act as enablers to these goals, even if they must develop creative solutions. 

Michael Alper is President and CEO of Meridian Health Care Management, Inc., Woodland Hills, CA. He can be reached at

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