Should Your Health Plan Build or Buy a Technology Solution?

Flexible solutions offer greater value to health plans.

Whether your health plan has decided it has outgrown its manual paper-based processes or existing technology, at some point you will likely ask, “Should we build our own custom solution or buy something off the shelf?” No matter your choice, there will be trade-offs, primarily between cost and control:

• Build: more cost, more control
• Buy: less cost, less control

How will you make that decision? Let’s explore the considerations of each.

“We invested 5 years and $12 million in developing a custom software solution — and it still wasn’t usable.” – CEO, National Health Plan

To Build: Consider the Costs

The impulse to build software in-house to answer a company’s technology needs isn’t uncommon. In fact, it’s a very traditional approach. Many companies prefer to keep their business activities under the corporate umbrella, and in some cases there may not be a software solution that suits the unique needs of a particular company.

The build versus buy argument often comes down to core issues, such as cost, proprietary rights, and usability. Before you go down the path of custom development, evaluate the costs of the best-match off-the-shelf solution. Then, take that figure for licensing and implementing that solution and multiply it by 10. If your organization has a successful track record of commissioning custom software projects, this estimate will be reliable. If this experience is lacking, multiplying by 20 is a safer bet.

If you experience sticker shock at these estimates, remember that the developer of the off-the-shelf system is able to amortize the cost of the solution across many health plan clients because that is their core business focus. For health plans, the costs of building software in-house are often misaligned with bottom line figures for many reasons.

Beware Hidden Costs

It’s not just the cost of development you are taking on when you build your own solution. Often, the costs to implement and manage custom software in-house are not fully considered when the project is initialized. Remember to factor in ongoing and hidden costs related to your custom-built software:

• Support
• Administrative personnel
• Updates
• Training
• Outside experts
• Technology upgrades
• Sole responsibility for integrations with third-party applications

While building software internally is the right decision for some, it certainly pays to consider all your options.

The Cost of Distraction

Many software professionals feel that in-house development offers fewer advantages than purchasing an external solution, due to a hefty “soft” cost that is difficult to predict and calculate: Internal development of software sways a company off-course from their actual core business focus.

“Once you decide to develop… you are no longer just in [your primary] business; you are now in the software development business,” says Wes Trochill, founder of Effective Database Management and author of this article. Trochill goes on to explain that when you enter the realm of software development, your internal resources also become responsible for scoping the project, testing and documenting the software, and the development and delivery of a training program.

An analysis of 1,471 IT projects revealed that “the average cost overrun was 27% — but that figure masks a far more alarming ‘fat tail’ risk. Fully one in six of the projects in the sample was a Black Swan, with a cost overrun of 200%, on average, and a schedule overrun of almost 70%.” If your health plan is already facing common issues — slim margins, rising cost pressures, etc. — an out-of-control tech project can compound these factors.

Investing in buying a solution means that your vendor assumes all software development responsibility, which frees up a health plan to focus on other important issues.

To Buy: Consider the Control

In a highly regulated and sensitive environment like health plans operate in, it’s intuitive to prioritize control at any cost. But, how much control are you actually sacrificing by finding a strategic technology partner?

For one, unless your internal IT and development resources have the bandwidth to dedicate to your custom software project, you likely will be contracting with outside development resources anyway. In that scenario, even owning the code won’t be an advantage when it comes to pursuing updates down the road.

Secondly, it is in a technology company’s best interest to listen to and respond to their clients’ feedback. With the right vendor, your voice will be heard, acknowledged and considered with their development roadmap and enhancements process.

Custom vs. Configurable

Ask yourself: is it really “custom” software that you need, or something “configurable”? By that, we simply mean that in many industries — healthcare included — multiple needs have been resolved by third-party software providers.

In essence, are you “re-inventing the wheel” by embarking down the path of customized software, only to find at the end of the journey there was a flexible, credible, highly effective solution already on the market? Start by defining the business processes that make your organization truly unique: fields, workflows, permissions. Prioritize solutions that make these elements configurable.

In the end, even if configurable elements don’t satisfy all your requirements and you need to commission truly custom development additions to a vendor’s technology, it’s easier to predict the cost investments when you purchase external software.

“IT leadership understood how time consuming, resource intensive, and costly it would be to build something internally. Fortunately, we came across ClarisHealth and they had the solution. A similar self-built solution, to really get something that has the functionality of Pareo, would have astronomical costs associated with it.” Erik Chase, Director of Payment Integrity, L.A. Care Health Plan. Download the case study.

Bonus Expertise

Whether you outsource your custom software development (the most common scenario) or rely on internal IT resources, you most likely will be defining your process and functionality needs yourself. Consequently, you risk replicating those existing processes and workflows that bog down your effectiveness and efficiency into your new system.

By contrast, those organizations that adopt an industry-specific technology solution benefit from a community of expert users. We work with our clients every day to discover novel solutions to entrenched challenges, and they provide us with ample opportunity to hear directly from industry leaders what works and what doesn’t in terms of technology for payers.

Additionally, our in-house experts have worked extensively with our payment integrity platform as Auditors, Data Miners and Overpayments Specialists — just like you. It’s a unique position that allows us to, as one client put it, “see the problem as if you’re working alongside us.”

Control and Innovation: You can have it all.

In the case of ClarisHealth, our top competitor is typically a health plan’s self-developed software solution. And many times, a plan is fairly happy with the performance of that homegrown software. However, that technology is often times lagging when it comes to updates and innovative upgrades.

It isn’t uncommon for our team to implement a software system that replaces an in-house system that a health plan has outgrown. Our best advice? Think through your software needs, and only consider in-house development if cost is no consideration and you cannot find a pre-existing solution on the market.