February 2003 Bulletin

The Application Service Provider business model

An innovative approach

By Steven E. Fisher, MBA

The Application Service Provider (ASP) model—an innovative approach to conducting business that has been used for years in a number of industries—is increasingly making inroads in the healthcare field, including orthopaedic offices. The ASP allows offices to gain access to and utilize practice management software owned by third parties via the Internet. The third-party ASP can be either a company offering its own product(s) or an intermediary that offers one or more products developed by other organizations.

The practice management software typically resides on a computer maintained by the third party either at its location or at a remote site. Physicians and staff at the practice (and sometimes patients as well) gain access to the software via a secured connection. It is usually the ASP’s responsibility to ensure the integrity of the software, to develop and implement software upgrades as they are needed, to store data on behalf of each client and to maintain the network connections.

Products currently offered by ASPs over the Internet include accounts payable, patient accounts management (billing and collections), capitation analysis, electronic medical records (EMR), coding assistance, payer contract management, patient education, disease/outcomes management, messaging and inventory control.

Reduced costs

For orthopaedists, a key benefit of the ASP model is reduced cost in terms of the upfront capital expenditure and day-to-day operations. Another advantage is that, because ASP services are Internet-based, the implementation process can be streamlined and software updates can be offered more quickly than would otherwise be the case. Finally, orthopaedic practice managers do not need to worry about how best to plan for expansion, either in terms of number of users or amount of information to be processed and stored.

Not problem-free

The ASP industry is in its infancy, however, and the ASP model is not free from problems. In the first place, there is a great deal of vendor instability, and companies that are aggressively soliciting business one day may be out of business the next. Second, since ASPs typically contract with multiple clients, their ability to tailor their software to one client’s specific needs may be limited. Third, questions can arise regarding who owns data that clients have entered into the ASP’s computers. Finally, practices and ASPs all need to consider the implications of Title II of the Healthcare Insurance Portability and Accountability Act that focuses on the privacy and security of confidential patient information.

Engage in due diligence

An orthopaedic practice interested in pursuing a business arrangement with an ASP should engage in due diligence regarding the financial stability of every company it is considering doing business with. The practice should also develop a request for proposal regarding the scope and cost of needed services. Finally, the practice should be certain to solicit and check references from the selected ASP before signing any agreement, and an attorney should carefully review the agreement itself.

Steven E. Fisher, MBA, is the manager of practice management affairs, AAOS department of socioeconomic and state society affairs. He can be reached at (847) 384-4331 or sfisher@aaos.org.

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