PacifiCare Health Systems Inc. said it plans to outsource its IT operations to IBM Corp. and consulting firm Keane Inc. in a 10-year, US$1.2 billion deal that will save the company between $380 million to $400 million over the life of the contracts.
With 3.6 million members, Santa Ana, Calif.-based PacifiCare provides managed health care services for company health insurance plans and Medicare beneficiaries in eight Western states and Guam. The company said the IT outsourcing agreement is part of a larger cost-cutting program announced yesterday that includes the elimination of about 1,300 positions, or 15 per cent of the company’s workforce, leaving PacifiCare with between 7,500 and 7,600 employees.
The outsourcing agreements will account for the transfer of an additional 600-plus jobs to Boston-based Keane and IBM, according to Dan Miller, a PacifiCare spokesman.
Larry Vale, a Keane spokesman, said his company will assume management of PacifiCare’s applications and application development and estimated the value of the of the deal at between $450 million and $500 million. Vale said between 250 and 275 PacifiCare IT staffers would be transferred to Keane as part of the agreement, adding, “They will not have to move.”
IBM will manage PacifiCare’s IT infrastructure through its outsourcing contract, which spokeswoman Nancy Kaplan valued at more than $761 million. “This is a mega deal,” she said. Kaplan said she couldn’t give details on the work IBM would perform for PacifiCare, but said that “in a typical outsourcing contract, we take over data centre operations, manage the voice and data network and provide help desk services and PC support services.”
Kaplan couldn’t say how many PacifiCare IT jobs would be transferred to IBM. PacifiCare spokesman Miller also could not provide further details on the IT outsourcing project.
PacifiCare said the restructuring would result in a fourth-quarter pre-tax charge of $60 million. Howard Phanstiel, PacifiCare’s president and CEO said in a statement that the restructuring “furthers our efforts to operate as a single company under a uniform business model and technology platform and reduces our cost of doing business.”
Mark Anderson, CEO of Anderson Consulting Group Inc. in Spring, Texas, said that while outsourced IT contracts can get “more work done for less money,” he was skeptical of the savings promised by PacifiCare. “I’ve never seen an outsourcing agreement save a lot of money for IT departments,” Anderson said. But, he added, “the budgets for most health care and hospital IT departments are a little high for the amount of work they get done.”