Healthcare IT outsourcing expected to hit $60B in two years

The demands of data security, population health and value-based benefits solutions and revenue cycle modernization will drive the evolving payer IT outsourcing market to more than $60 billion by the end of 2017.

The payer IT outsourcing market is expected to grow over 40 percent in the next two years, according to estimates from Black Book Market Research. Better software solutions have accelerated IT expenses faster than anticipated with no corresponding lift in revenues for many health plans.

"Health insurance niche software and services vendors are once again offering outsourcing as a cure-all for organizational cost controls," said Doug Brown, managing partner of Black Book.

Still, less than one in 10 of health plan IT executives surveyed are considering full or end-to-end offshored solutions. "With concerns over hostile offshore locations and escalating health data security and privacy issues, fewer payers are entertaining having a third-party overseas corporation between them and their IT nervous systems in 2016.”

Health plans are budgeting at least twenty percent increases in outsourcing spends for 2016, according to Black Book. But, only 5 percent of health plans with over 100,000 members are considering full, end-to-end outsourcing in 2016 strategic IT planning. However, individual projects and support centers see significant increases in outsourcing support including:

• Application Support going to 69 percent of all health plans in 2016, up from 35 percent in 2015; and
• Desk Top Support and Help Desk Support could experience a rise to nearly 80 percent of larger health plans turning to outsourced vendors in the next 12 months.

The largest increases from both large insurers and small health plans, according to surveys, are projected to be in security and privacy projects, and cloud initiatives, both expected to grow to over half of all new outsourcing business initiatives for 2016 in managed care organizations.

"Changing government regulations are leading insurers to outsource more IT functions including big data and database management, analytics as a service, mobile applications, population health and security solutions," said Brown.

Black Book research shows that more than half of the top revenue producing U.S. health payers already outsource at least some part of their IT infrastructure management.  That figure went from 44 percent in the first quarter of 2014 to 72 percent in the third quarter of 2015.

That figure is expected to increase again, to 93 percent of health plans surveyed plan on outsourcing analytics related projects by the first quarter of 2017.