IT Systems and Back Office Outsourcing on the Rise for Health Plans.

Business Editors

LONG BEACH, Calif.--(BUSINESS WIRE)--June 20, 2000

First Consulting Group and Blue Cross and Blue Shield of South

Carolina Study Indicates an Increase in Outsourcing

Application Service Providers (ASPs) Are Helping Health Plans

Ramp Up Their E-Health Capabilities, as Well as Outsource

A new study conducted by First Consulting Group, Inc. (NASDAQ:FCGI) and Blue Cross and Blue Shield of South Carolina (BCBSSC) revealed that 40% of surveyed health insurers fully or partially outsource the information technology functions of their core managed care processing, up from 15% just five years ago. Thirty-one percent of health insurers surveyed fully or partially outsource their back office processing functions, up from 10% five years ago. The survey reveals significant growth in the outsourcing of core information systems and back office functions in health plans.

"Given the rate of change in the healthcare market and the rapid evolution of technology, we recognize the need to maintain current data on market trends," said Erica Drazen, vice president of FCG's emerging practices group. "This is one in a series of databases we have assembled as packaged knowledge to serve our clients," added Drazen.

FCG obtained these findings as a result of a planning and research project for BCBSSC's subsidiary, Companion Information Management Resources (CIMR). CIMR provides IT and back office outsourcing to the health plan market. FCG created an innovative, detailed database drawing upon three nationally recognized databases, the November update of Interstudy1999 Competitive Edge, the HCIA 2000 Guide to Managed Care, and the 1998 Gartner Group's Singer Report. The data was then substantiated by a phone survey of over 485 health insurers, 60 software/outsourcing vendors, and over 100 third party administrators (TPAs).

The survey provided insights into vendor differentiators, cost models and solution packaging. Plans that stated that they do not outsource (about 44% of those surveyed) cited they use one or more of 30 different in-house software vendors. "Based on our assessment and knowledge of the market, we believe that the lack of a clear market leader in the outsourcing market will allow new entrants to emerge, leading to more competition and competitive pricing for health plans," added Drazen.

"The study confirms the market need for our suite of solutions, especially our new Web-based member and provider customer self-service offering," said John Tempesco, vice president of CIMR.

The Growing ASP Market Segment and its Role in Outsourcing and

E-Health

FCG has identified three vehicles for IT outsourcing of core managed care processing: facilities management, service bureau (timeshare), and application service providers (ASPs). ASPs provide a contractual service offering to deploy, host, manage, and lease access to software applications. ASPs are similar to the timeshare model, but are differentiated by their use of the Internet for connectivity and the use of newly designed technical architectures that optimize the Internet delivery model. Various sources have stated that the ASP market segment is expected to grow significantly from $200 million in 1999 to $6 billion by 2003, making it one of the fastest growing outsourcing segments for health plans.

"ASPs provide a new and innovative mechanism for health plans to outsource and finance their Web capabilities," said Jon Solomon, a director in FCG's health plan services group. "The survey also indicated that outsourcing vendors that offered Web capabilities were preferred over traditional vendors. These results validate recent FCG surveys on e-health that show health plans are working hard to ramp up their e-health initiatives," added Solomon.

About First Consulting Group

Named by Forbes magazine in November 1999 as one of America's 200 best small companies, First Consulting Group is a leading provider of information-based consulting, integration, and management services for healthcare, pharmaceutical and other life sciences organizations in North America and Europe. The firm's services are designed to increase its clients' operations effectiveness, resulting in reduced costs, improved customer service, enhanced quality of patient care and the more rapid introduction of new pharmaceutical compounds. More information about FCG is available through the FCG World Wide Web site at www.fcg.com or by calling the toll free number 800/345-0957.

About CIMR

Based in Columbia, S.C., CIMR provides information management systems and support to managed care and health insurance organizations nationwide. A wholly owned subsidiary of Blue Cross and Blue Shield of South Carolina, CIMR offers award-winning technology solutions that plug Blue Cross and other customers into the nation's largest healthcare electronic data processing center.