Is BPO The Way To Go? - InformationWeek

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11/3/2004
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Is BPO The Way To Go?

Business-process outsourcing can transform performance without the capital investment. The catch: You'll have to settle for standard processes.

Business-process outsourcing (BPO) is one of the hottest trends in IT services. Just don't confuse it with offshoring, a contentious issue that's likely to stir emotions into the 2008 election season and beyond.

BPO is the delegation of an IT-enabled business process to a third party that assumes ownership, administration and management of that process. Businesses will pay service providers at least $131 billion to handle processes in 2004, Gartner predicts. Offshoring, the practice of sending labor-intensive tasks to low-cost workers in foreign markets, will account for only about 1 percent of that total.

"If you compare the coverage [of outsourcing] in the press and the claims of the providers to the total market, it doesn't make sense that it's getting so much attention," says Gartner analyst Lisa Stone. "The press is equating outsourcing with offshoring."

There's no doubt that businesses are turning to BPO. The practice will grow 32 percent to $173 billion by 2007, according to Gartner, and it will account for 56 percent of IT services expenditures worldwide by 2008, up from 53 percent this year.

BPO is distinct from IT-services outsourcing, in which a company farms out lights-on operations or application development to a service provider (an area in which offshoring is more commonplace, Stone says). BPO is far more strategic, calling for finesse on the part of both the customer and the service provider.

Speeding Up the Loan Process

Four years ago, when MIT Lending needed to access a loan file, a clerk would walk to a file cabinet, sift through files, hope that the file hadn't been misplaced, and then throw it on top of a stack of files waiting to be processed. Each of the some 5,000 loan files processed each month contained about 230 documents and would be routed from one clerical area to another, each performing some specialized task like data entry or auditing. At the end of the process, MIT Lending (MIT), a retail and wholesale mortgage lender, would add the loan to its portfolio or sell it on the secondary market.

BPO Charts Today, the file cabinets are gone. In their place is a computer screen identifying precisely where each file is in the process. The file and its associated documents are viewed in image format. The company has achieved cost savings and efficiencies, speeding the time it takes to close a loan and get it onto its books as a financial asset.

But MIT didn't just streamline its process, it pushed core tasks out to a third-party service provider, SourceCorp, which scans the documents either at MIT's site or its own site, stores them in a repository called Fastrieve, indexes them by loan number and type for easy searching, and automates the workflow.

MIT considered several other service providers but settled on SourceCorp because it already had a business relationship with it, but more importantly because the technology SourceCorp provides matches its needs, says Jennifer Wray, vice president and national operations manager of the correspondent lending division. The clincher, she says, was the Fastrieve repository, which enables MIT to have its loan files scanned by SourceCorp on site, then transmitted to Fastrieve. Once there, files are placed into the first of eight queues, through which they proceed one at a time, each queue designated for a different process. The entire process takes 72 hours from start to finish and has boosted efficiency by 30 percent, Wray says. Even better, it's cut the length of time needed to get a loan out to the marketplace from eight days to four.

At the heart of the SourceCorp solution is Captiva Software's Formware, which captures and manages business-critical information from forms, documents and electronic data streams. This information is then exported to databases, applications and content management systems.

Faster Claims, Lower Medical Costs

Business processes often transcend organizational boundaries. In medical claims processing, for example, the traditional process involves a physician or another health-care provider filling out a paper claim, faxing or mailing it to the insurer, waiting for the claim to be adjudicated, then receiving payment and benefits advice.

Under HIPAA, this and other administrative functions, which account for a quarter of the $1.7 trillion spent on health care in the United States each year, are to be converted into electronic submissions. One of HIPAA's sections defines standardized administrative codes that are assigned for specific medical procedures to facilitate electronic claim submissions. Those codes, which became effective last year, are spurring health-care providers and insurers to communicate electronically. The problem: many small medical practices can't afford to make the software investments necessary to transmit claims electronically, or they must rely on their medical practice software providers to do it for them.

Insurers, meanwhile, have everything to gain by easing the burden on physicians. They want to get physicians paid faster, adjudicate claims with more speed and accuracy and reduce clerical expenses. Unlike physicians, insurers have the financial resources to make it happen.

"Different levels of sophistication exist among physician groups," says Jeff Valentine, a spokesman for CareFirst BlueCross BlueShield. "Some have rudimentary IT systems and it may be beyond their capacity to transmit documents electronically."

CareFirst recently contracted with ProxyMed, among the nation's largest healthcare transaction services companies, to provide connectivity to physicians in its network so they can submit medical and hospital claims electronically, receive electronic remittance advice and track the progress of claims and ensure receipt by CareFirst.

Services provided under the contract enable paper-dependent physicians and hospitals to submit HIPAA-compliant transactions through ProxyNet, ProxyMed's processing network, which offers an array of transaction services through Web-based portals.

The ProxyMed service is a big productivity enhancer, Valentine says. It speeds up the claims adjudication process. Providers can check the status of claims throughout the process while CareFirst receives multiple levels of reporting including approval/denial information.

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