In coming weeks, with one stroke of the pen, Texas-based Perot Systems Corp. will gain a 600-employee presence in Rhode Island and a springboard for future growth.
Perot Systems’ pending contract with Blue Cross & Blue Shield of Rhode Island, announced Feb. 7, is seen by company officials as a key foothold that eventually will position the information-technology firm to pursue contracts with health-care organizations throughout the Northeast – and likely build its headcount here.
“We’re looking to aggressively grow in the area, using the Rhode Island location as a good platform to support other customers,” said Chuck Lyles, Perot Systems vice president and health-care industry group leader.
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The publicly traded company will take over Blue Cross’s business-process operations, including claims processing, and its IT system under a $450 million, 10-year contract, which is in the final negotiation stages. Perot will absorb roughly 600 Blue Cross workers and run operations from a “regional operations center” in Providence, the location for which has yet to be chosen.
Perot Systems’ has one other big contract in New England, a $700 million deal it signed in 1999 with Harvard Pilgrim. While it has a few hundred HMO customers nationally as well, the company’s bread and butter is serving hospitals: It is one of the country’s largest providers of outsourced IT systems to hospitals, with more than 300 accounts, including four contracts among the country’s 20 largest health systems.
Lyles said the company plans to target hospitals and health plans in Rhode Island and surrounding states.
“If you look at the 13 hospitals in the Rhode Island market, we should be able to target that provider space and support those customers out of the facility in Providence,” Lyles said. “We feel like we can bring the same skill sets to help reposition these hospitals to be more competitive in the marketplace.
“With the largest payer in the system as our customer, we’re well-positioned to reinvent the revenue-cycle management and take costs out of the system,” he said.
It is common for both HMOs and hospitals to outsource as a cost-cutting measure. But their goals often are different, said Jim Gabler, the research director at Cambridge-based Gartner, a research firm.
Health insurers generally develop much of their own software, so the advantage of outsourcing – like in Blue Cross’s deal with Perot – is that the health plan gets access to lower cost and oftentimes superior enterprise systems. But for hospitals, which are more likely to purchase software from vendors, the benefits are more heavily tilted toward greater operational efficiencies, Gabler said.
He added that hospitals’ decisions to outsource IT and other functions often are driven by their boards of director.
“The experience that other industries have had in outsourcing to save money has led hospital boards to suggest to executive teams that they ought to look at outsourcing,” Gabler said.
As an example, Lifespan does outsource some of its IT functions to companies, though the state’s largest health system has spent roughly $50 million over the past several years building much of its infrastructure and applications in house.
Carole M. Cotter, a senior vice president and chief information officer of Lifespan, said the system generally runs its own business processes and builds its own network infrastructure and programs. But it outsources to large IT firms such as Siemens to host some software programs.
“It’s a basic strategy to outsource where we believe someone else can do it better and cheaper than we can,” Cotter said. “But we don’t want to outsource anything that is considered strategic, like the building of our clinical systems. It is too critical to our success.”
Even for the largest health systems, outsourcing huge chunks of their IT systems is becoming the norm, according to Gartner.
“The tension between ‘doing more’ and ‘doing it with less’ is creating new realities for health-care organizations, which can no longer ignore sourcing approaches that seem to have worked in other industries,” reads a Gartner report from last year.
Lyles said Perot Systems officials will be in Providence next week scouting potential locations for the new operations center. He said he hopes to sew up a lease by late March.
“We’ll be looking at a facility that allows us to expand,” he said.
The company is no stranger to absorbing employees from other firms. It has had workers transferred in – either via acquisitions or through contracts like the one with Blue Cross – 62 times in its history.
Perot Systems was founded in 1988 by Ross Perot, the billionaire and former presidential candidate who also founded information-services giant Electronic Data Systems. Perot remains chairman of the board for the 7,500-employee company, and his son, Ross Perot Jr., is the company’s president and CEO.
The company announced fiscal year 2002 results last week, posting $1.33 billion
in revenue for the year and a fourth-quarter profit of $19.9 million, which
was triple that of a year earlier. It’s stock price as of mid-week last week
stood at about $10.
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