Managing Costs with Metrics


By Cindy Atoji

Feb. 26, 2008 | John Distefano thinks he has a cure for what ails health care organizations, particularly health plans and payors. In a tough environment of increased medical costs, regulatory requirements, and competitive pressures, Distefano believes that business intelligence and informatics hold the key to improving operational efficiency. Distefano, vice president and executive director of health care payer services at BearingPoint, a management and technology consulting firm, says that for many payors, rapid consolidation has resulted in multiple, disparate information technology systems — systems that deliver vast amounts of data, but often fail to provide system administrators with the insights they need to make strategic decisions about the state of their businesses. Digital HealthCare & Productivity spoke with Distefano about using quality metrics to help drive down health care costs and using non-traditional data to measure outcomes.

DHP: What steps should health plans take to improve performance metrics?

Distefano: Part of transforming health care is not only the quality side but also the cost side. As a health plan, this means focusing on understanding their own value proposition to the marketplace; understanding what they could be doing to transform their own core administrative costs. This includes intelligently looking at what processes could be potentially outsourced, which is a very delicate decision that needs to be made on a case-by-case basis. Many organizations believe that outsourcing is a good way to accommodate an improved cost profile and at the same time potentially means losing an important connection point with their constituency or membership. So I think organizations need to look seriously at their own administrative cost structure from a process standpoint.

From a technology standpoint, we still have a number of large health plans dealing with technology that is 15-20 years old. When they develop new products and services, these need to be developed and implemented multiple times across multiple systems, so there’s a technology of optimization that continues to drive administrative costs and functions. So you’re looking at the technology and process side of bringing to the market an optimized operations model.

On the medical cost side, there’s an opportunity to improve performance measures relative to our overall cost of medical care. We’ve been focused on the 5-10 percent of the population who drives 50-60 percent of the medical costs. But now with new technology and more informed population, we have the ability to reach the other 80-90 percent of the members through the Internet, outbound marketing and educational campaigns, reaching out and more proactively advocating for preventive services, wellness decisions and healthy lifestyles. This means not just focusing on managing chronic conditions and building discrete infrastructure around disease states but recognizing [that] we have the technology, tools, and ability to address the medical side — which includes wellness — as well as the core administrative side.

DHP: What role does informatics play in this and how does it improve ROI?

Distefano: To us, informatics is about the application of analytics. We have the ability to capture information we need and have the analytics to understand what the data is telling us. For example, how do we better optimize our pricing model for given geographic segment? What new market should we enter to provide new medical innovations as well as potentially improve costs? Applying that intelligence and imbedding that intelligence into decision points throughout the organization — that’s what we really think the secret is relative to ROI.

Unfortunately, informatics tends to be the highest cost application when measured on a per-user basis. That doesn’t mean it’s still not driving value, but you might have a handful of actuaries, provider network manager, and a hundred users who are the primary consumers of an informatics infrastructure. That infrastructure could cost you tens of millions of dollars to implement.

Traditionally, informatics has been a back office, batch-orientated application on which we run models to determine profitability, segmentation. But it needs to be moved to the frontline and applied to hundreds if not thousands of decision points and made part of our day-to-day decision processes. So instead of making two or three key decisions every month, which may be influencing hundreds of thousands of dollars in ROI, let’s move that to the frontline where we can could be making hundreds of thousands of decisions in an augmented fashion. Each one of them could be moving the needle only $10, $20, $50, or $100 when measured by ROI, but by the sheer fact that we’ve now embedded intelligence in the frontline of organization, we think that’s the next level of leveraging what is a large fixed asset or investment in informatics or business intelligence and moving that out to the next level of return.

So you can take those same profitability models, retention models, and predictive models that talk about how to improve quality of care, and embed them into the frontline of the organization and automate them. So by embedding intelligence here, for example, at the call center, when dealing with a member [and employee considers]: is this a potential member that is being renewed next month? Should we be offering them certain incentives to stay with us? Or is this a member, who based on their prescription history, that our predictive model is telling us that they are a potential latent diabetic and we should encouraging them to take certain preventive interactions?

 DHP: You talked about outsourcing earlier. Do you think outsourcing is necessary to be successful and where and how do you apply it? 

Distefano: The answer to this is not black and white. There are a number of successful organizations that have a high degree of high quality outcomes, highly efficient, manageable administrative cost rates, and are bringing innovation to marketplace, and are outsourcing very little or not at all. Conversely some of the major nationals are outsourcing heavily.

You need to look at each process on a process-by-process basis and ask: How does this enhance or detract from my value proposition to the marketplace? Health plans which aim to provide value-based access may be more apt to outsource than those health plans that provide premium care and service excellence.

DHP: What are the specific processes that might benefit from outsourcing?

Distefano: Some companies are making that decision around call center operations and membership, eligibility, claim status. This is a key process area that we see organizations discussing.

Enrollment processing is another potential area for outsourcing. There’s a robust process to get all the members to go through the process of enrolling and selecting benefits. This process can be largely automated and electronic and this is an area where we see a significant focus of outsourcing.

Another area of outsourcing opportunity is in managing provider data. Receiving, integrating, and maintaining provider data is another area for business process outsourcing and an opportunity to potentially reduce overall administrative costs by moving those offshore. It’s infamously difficult to keep this synchronized and consistent across a health plan because there are multiple systems — from claims to provider systems — so it can tend to be manually intensive to maintain and keep all the data synchronized.

DHP: And how much could an organization save by outsourcing?

Distefano: We see organizations saying that if we outsource a process, we would like to at least maintain our existing service level and see a 30 percent decrease in actual cost of delivering those transactions. And over time, as outsource vendors continue to introduce innovations and technology advances, organizations want not just 30 percent off the front, but also an incremental 3-5 percent service cost reduction each year for the first five years of our outsource arrangements. These are ballparks depending on the size of the contract and the nature of the process.

Or the client may say, “We’re OK with a 10 percent cost improvement; what we want to see is the service level improvements and see the cycle time reduced by 25 percent; or, we want to see our back log of active claims reduced by three days.” So we do have clients who look at this as a way not to just to reduce costs but also to try to co-buy or get a higher service level by handing this to an outsource vendor.

DHP: How can payers leverage business intelligence to determine how well they are serving various ethnicities, demographic segments, and locations to drive up quality?

Distefano: Health plans need to be thinking about micro segments. Business intelligence and informatics are absolutely crucial to be able to make that shift to make rating and pricing decisions for individual markets.

This is about reshaping and revisiting the business intelligence infrastructure to be sure it allows us to manage profitability, and rating and product selection at individual, not just group levels. Health plans need to be more granular and have greater dexterity in managing profitability of each individual based on socioeconomic backgrounds. So risk management and rating of a population of one, versus the traditional competency of doing underwriting and risk management for populations of dozens if not thousands.

DHP: How can health care payors improving operational efficiency by optimizing investments in systems integration and interoperability?

Distefano: On the back end, it’s the economies of managing multiple systems and on the front end, investing in a self-service layer to bring transactions into a less costly channel.

We have clients who have five different provider management systems, four different claims engines, three eligibility systems and two benefits configurations. It is not at all uncommon to have multiple systems, support staffs, maintenance and relief schedules, so whenever there is one enterprise initiative it’s multiplied by five as we ripple it across all five infrastructures. So one area we are seeing organizations really focus on is an integration super structure, so that when we make a change or we have a new functionality we want to introduce, we want to reduce or eliminate the number of touches we have to make back in the core legacy system. Managing and thinking about an integration framework allows you to reduce the cost and the maintenance overhead of supporting these multiple systems.

On the front end, this means driving more and more robust capability into our self-service platforms, so we can take burdens off our high-cost transactions, such as call centers. To the degree that we can invest in building our technology infrastructure around self-service gives us an opportunity to manage transactions for pennies versus, for example, in a call center, $2.50 or $5 a transaction.

 

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