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Will Government Intervention Drive the Future of Managed Services?

While attending a large Public Sector conference in Florida recently, I had the chance to listen to the new face of healthcare in the United States -- the IRS! Still, what I heard could have positive implications for managed services providers (MSPs). Here are the details.

Several agencies were either created or expanded by the passage of the Health Care and Education Reconciliation Act on March 30, 2010.  These include the Health Choices Administration, the Health Benefits Advisory Committee, and the Health Insurance Exchange, among dozens of others.

However, the primary federal bureaucracy responsible for implementing and enforcing national health care will be an old and familiar one:  the Internal Revenue Service.  They will determine who has an acceptable health insurance plan, find and punish those who don't have such a plan, subsidize individual health insurance costs through the issuance of a tax credits, and enforce the rules on those who attempt to opt out, game, or otherwise game the system.

The Health Care Act finished up at over 2,500 pages.  This is just the beginning, according to industry experts (including the IRS).  The regulation and legislation interpreting this act will likely run from 75,000 to 100,000 additional pages.  This is in addition to the earlier Health Insurance Portability and Accountability Act (better known as HIPAA) from 1996.  HIPAA has already changed the industry significantly with the addition of privacy and security safeguards required for compliance.  Examples include:
  1. Administrative Safeguards – policies and procedures designed to clearly show compliance with the act including designating a privacy officer.
  2. Physical Safeguards – controlling physical access to protect against inappropriate access to protected data
  3. Technical Safeguards – controlling access to computer systems and enabling covered entities to protect communications containing patient information.

Implications for the Channel and Managed Service Providers?

Many Channel partners have taken advantage of opportunities around HIPAA compliance already.  The level of consulting, implementation and support services needed to reduce the complexity as well as ensure compliance has grown exponentially.  With at least 75,000 pages of regulation on its way by 2014, this will not slow down.

It was reported by Gartner last year that 11% of U.S. based small and medium sized businesses IT spending is in a recurring revenue model.  Looking at each of the 27 major industries, it is very clear that government intervention is good for the growing Managed Services industry.

A few examples:
  1. Finance industry – with the current political climate supporting increased regulation of Wall Street, it isn’t farfetched to think that 2,500 pages of law may be coming soon.  On top of the Sarbanes-Oxley Act of 2002, forthcoming legislation will likely add administrative, physical and technical safeguards to this industry as well.  Independent accountants and financial planners  may be put in the same position as doctors and medical practices are today.
  2. Oil industry – with the worst ecological disaster in US history happening now in the gulf, it is extremely likely that the tide of industry self-regulation will come to an end.  Regulation and compliance will not just be for the largest of the oil companies, every small geological and engineering company will be included as well.
  3. Education industry – with significant budget shortfalls in almost every state, one of the casualties has been IT support for schools.  In fact, a 2009 study by eSchoolNews showed 550 mean number of computers per technician – a staggering 1409:1 student to technician ratio. A whopping 75% of IT professionals in this industry report no having enough staff to implement and manage new technology.

Why Managed Services is the Model of the Future

Those Channel Partners who have made the successful transition to Managed Services are reaping the benefits of supporting more and more customers from a central location.  Building a practice that blends vertical expertise as well as horizontal consulting and implementation capabilities will further drive growth for these providers.

I am hear customer feedback from single doctors right up through ultra-large school divisions that having a trusted Service provider who share the same goals and objectives has truly changed the game.

It wasn’t long ago that the Channel garnered most of its services revenue from time and materials, break/fix and implementing disparate systems.  Customers wondered whether the Partner really wanted the solution to work – as that would theoretically reduce their revenue.

In a recurring revenue model, the mutual goal of the customer and provider are to reduce costs, increase productivity, and implement best practices.  The customer has the benefit of utilizing seasoned veterans, paying for performance, and a variable expense model that can be funded operationally off the balance sheet.   The largest benefit for the customer is not to take their eye of the ball – avoiding decoding 75,000 pages of regulation and legislation and hoping to be compliant.

Call to Action

As IT vendors (big and small) take notice of this future there must be a willingness to work together for the common good of the Managed Services Provider.   This means seamless hardware and software integration with their services.  This also means a clear, consistent and predictable Channel program that doesn’t compete.

As Managed Service Providers further develop their acumen in vertical solutions, less time will be spent on navigating the myriad of vendors and complicated programs.

Jay McBain is director of SMB for Lenovo. Guest blog entries such as this one are contributed on a monthly basis as part of The VAR Guy’s 2009 sponsorship program. Read all of McBain’s guest blog entries here.


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