Technology, Health Plans, and the Consumer
Consumers are playing an increasingly central role in the U.S. health care system as employers, threatened by soaring premium costs, gradually shift a greater share of the financial burden to employees. Health plans, through a combination of information technology and IT-backed services, are undergoing fundamental changes that will enable them to meet the rigorous demands of consumers.
Advanced IT solutions can increase health plan efficiency and affordability, as well as support the complex new offerings including consumer-directed products, online disease management programs, and online self-service that consumers require. But the demand for technological innovation extends well beyond these highly visible, consumer-facing areas of the enterprise.
Technology and technology-based services are beginning to transform the business cycles that characterize health plan operations, such as revenue management, network management, and finance and administration. As health plans continue investing in IT, the focus will be on achieving cost savings across these business cycles, generating the funds necessary for continued growth initiatives.
Cost Shifting
In 2002, health care spending in the United States increased 9.3 percent to approximately $1.6 trillion, while the gross domestic product increased only 2.2 percent, according to a study in the journal Health Affairs.
For employers, the rate of increase was steeper, with health care costs rising an average of 13.7 percent in 2002 and 14.7 percent in 2003, according to Hewitt Associates. For 2004, Hewitt projected a 12.6 percent increase in employers health care costs, which translates to an average outlay of $6,831 for HMO coverage (or $7,056 for PPO coverage) for each employee of a major company.
As they contemplate continued double-digit increases in health care costs, employers are shifting costs to employees and redesigning health plans to compel employees to assume greater responsibility for health care purchasing and decision making.
Thirteen percent of employers surveyed in August 2003 by the Health Insurance Association of America said they were likely to offer employees a consumer-choice health plan in the next year, and another 27 percent said they intended to do so within five years. Consumer-choice plans, also referred to as consumer-directed or consumer-driven plans, contain mechanisms that place the consumer in a more prominent decisionmaking role while easing the employers financial burden.
Consumer-Directed Health Plans Present New Challenges
Despite their promise, consumer-directed plans engender new costs and challenges, highlighting the need for technology solutions that can support these complex products and reduce associated administrative costs.
Defined-contribution plans typically include standard medical coverage, an employer-funded health reimbursement account (HRA), and an employee-funded flexible spending account (FSA). HRAs contain pre-tax dollars that employees can apply to health care costs. FSAs contain pre-tax dollars that employees can apply to health care and dependent-care costs. FSAs cant be rolled over from year to year, but, according to Internal Revenue Service guidelines, HRAs can.
Ensuring that HRA and FSA contributions and expenditures are quickly and correctly posted and that accounts are administered in accordance with each employers rules can be time-consuming and costly. Providing consumers with prompt, accurate information about account balances can be equally difficult.
A Minnesota-based health care organization that launched a defined-contribution product in 2003 ultimately hired an outside firm to handle much of the claims processing, citing the cost and difficulties of administering HRAs and FSAs in-house.
Provider Network Complexities Increase
Another practical problem arising with consumer-directed offerings is the need to manage the broad and deep provider networks that logically complement consumer choice plans. To help contain costs associated with larger networks, health plans are drafting increasingly complex contracts, particularly with hospitals. These agreements typically contain elaborate terms such as per diems, case rates, and stop-loss and lesser-of provisions, designed not only to contain costs, but also to align provider practices with health plan interests and objectives.
In the contract negotiation process, evaluating the full financial impacts of such agreements can be time-consuming and costly. Once implemented, complex contracts can dramatically increase the amount of manual labor required to process claims, as few existing software systems can accommodate highly elaborate scenarios. Without integrated technology solutions that can facilitate information exchange among providers and payers and perform complex calculations, the contracting strategies employed by health plans today can add to costs at a time when cost-effectiveness is critical.
Other challenges that mark the entry to the era of health care consumerism include the need to provide consumers with more and better information about the quality and costs of care; contending with rising utilization by aging baby boomers; complying with HIPAA and other pertinent governmental regulations; and meeting employers continued demands for affordability and information management.
Technology Driving Changes Across the Enterprise
These challenges may seem overwhelming, yet some organizations are laying the groundwork for success in the emerging market. Integrated technology solutions, coupled with IT-backed services, are the key.
Within health plans across the country, innovative technology solutions are helping transform the major business cycles of product development, revenue management, risk management, customer service, reimbursement management, care management, network management, and finance and administration. Here is a look at each cycle and some of the changes that technology-based solutions are helping to engender.
Making Consumer-Driven Products Easy to Administer:
The product development cycle is undergoing significant changes, which can be
supported by technology. For example, in 2003, the aforementioned Minnesota-based
organization began offering a defined-contribution product that included HRAs
and FSAs. Management soon found the product costly and difficult to administer,
as each claim underwent repeated processing to ensure accurate payment based
on the terms of the applicable provider network contract and the rules governing
use of each members HRA and FSA funds. After outsourcing the administrative
work, the health plan decided to take a different route, in hopes of increasing
payment accuracy and reducing expenses. The company began implementing a software
application, integrated with the core enterprise system, that would automate
administration of HRAs and FSAs. In 2004, with the implementation under way,
the company expects sharply increased sales of the product, which is drawing
widespread interest from employers.
In the future, IT will offer additional benefits for product development. Consumers will use Web-enabled tools to design their own plans, choosing the deductibles, copays, provider panels, and pharmacy-benefit levels that best meet personal needs.
Using the Web to Bring Money in the Door: Within the revenue management cycle, there will be deeper integration of Web-based technologies and core enterprise systems, which will facilitate sales and other revenue management processes. Health plans will use the Internet to deliver real-time quotes to brokers. Enrollments and premium billing will also be done online. Changes to the enrollment process are among the first to be embraced at a rapidly advancing rate.
Reducing Risk Through Predictive Technology: Within the risk management cycle, newly emerging software applications will enable health plans to underwrite prospectively and in real time, using highly detailed demographic considerations such as age, sex, medical history, and pharmacy history. Analyses, delivered quickly through automation, will support better assessment of risk, more appropriate pricing of products, and more accurate projections regarding the need for reserve funds.
Enhancing Customer Service Cost-Effectively: Internet self-service is a necessity, driving improvements in customer service and customer satisfaction while reducing manual labor. A New Mexico-based health plan recently adopted an Internet platform enabling the company to cut the volume of inbound customer service telephone calls by 50 percent. The organizations customer service representatives now have time to place outbound calls to members, asking whether they have questions and ensuring they have selected a primary care physician.
Internet self-service capabilities, coupled with CRM software, will be vital as consumer-directed products grow in popularity. To use these complex plans cost-effectively, consumers will need up-to-date information on HRA and FSA balances and the rules governing fund use. Online selfservice and CRM can help ensure that accurate information is provided quickly and cost-effectively, while reducing the volume of telephone calls fielded by customer service representatives.
The Internet also will play a key role in meeting consumer demand for information about the quality and costs of providers as the government continues to mandate greater access to such information.
Managing the Reimbursement Process: For many health plans, powerful enterprise software applications are delivering dramatic increases in productivity in areas such as claims processing, while reducing costs, errors, and delays.
An organization based in Tennessee is saving $5 million annually through its recent investment in an advanced core enterprise system. The company leads Tennessee in market share and is enjoying the highest customer satisfaction ratings in company history.
The electronic exchange of information has tremendous potential to help payers and providers alike reduce administrative costs. With standard data formats now mandated by HIPAA, market conditions are ripe for the widespread adoption of electronic information exchanges. In 2002, a California company that operates a large PPO began using an online claims exchange service that connects payers and providers electronically and simplifies the pricing of claims. The average turnaround time for claims priced via the exchange is 24 hours, versus three to five days for paper-based claims. Payer organizations also benefit from the service. The California PPO reports that one of its payer clients now auto-adjudicates 60 percent of its claims, thanks in part to new electronic connectivity processes.
The ultimate goal of this technology is to enable health plans to adjudicate and price claims while the member is in the physicians office.
New Methodologies for Managing Care: Some health plans already are using the Internet to reach out to chronically ill and high-risk members, ensuring these groups visit providers and obtain prescriptions and other goods and services as needed. In the future, high-needs populations will be identified proactively through voluntary questionnaires, claims histories, and other data sources. Ultimately, health plans will need to provide chronically ill members with the tools to manage their own conditions in a manner that complements the members specific benefit plans and provider networks.
Managing Complex Provider Contracts: Network management is essential. Contracts with providers, particularly hospitals, are becoming so complex that evaluating the financial implications of elaborate agreements has become a costly and difficult undertaking in itself. Yet without in-depth analyses, health plans risk signing agreements containing costly or faulty provisions.
Software applications can automate contract analysis, helping payers quickly model and evaluate proposed new agreements, regardless of complexity, and ensure that the terms are appropriate. Technology solutions that automate the pricing of claims can further reduce the administrative costs associated with claims that are tied to complex contracts.
Technologies that electronically link payers and providers, facilitating the exchange of medical claims, also provide valuable network management tools, further cutting paperwork and costs while boosting provider relations.
An additional element of network management that has been strengthened by technology is credentialing ensuring that practitioners and facilities meet health plan standards. As networks increase in size and complexity, many organizations are outsourcing the credentialing process to an external partner that offers advantages of scale as well as access to software applications that support the capture and assignment of key verification data.
Fiscal Responsibility and Administrative Tools: Business intelligence solutions, which enhance data collection, analysis, and reporting, are helping employees at virtually all levels and in all departments make sound business decisions based on solid analysis, not guesswork. In an era of intense competition, analytical capabilities of this kind are critical to success.
A payer in New York recently built an operational data store that is linked to the companys core administrative system. This enables employees to pull reports from the data store without IT staff assistance. The organization also has developed data marts that contain historical information from each major department. The executive team can quickly obtain multidepartmental reports that identify longer-term trends. As business requirements change, the company can add incrementally and costeffectively to this integrated business-intelligence system.
Outsourcing and ROI
Many health plans, acutely aware of the need for advanced IT initiatives, are equally aware of another consideration as well: IT isnt necessarily one of their core competencies.
Hosting and external management of software applications present a cost-effective solution. Complex software can be run, maintained, managed, and updated at a data center operated by a partner offering IT and health care expertise, state-of-the art equipment, and other advantages of scale. Hosting reduces the up-front costs associated with a software implementation and frees the health plan to focus on what it does best ensuring members receive quality, cost-effective care.
Some health plans are taking outsourcing further, and assigning noncore business processes as well as IT functions to external partners. This enhances the health plans focus on core competencies while increasing efficiencies as well. Outsourcing to a single partner that has expertise in both IT and health care business processes can further increase the gains.
With the potential to fully recover their up-front investment in two short years, it can be a wise decision for a millionplus- member health plan to outsource its software applications, as well as many of its business processes to a partner specializing in health care IT. An in-house implementation using a licensed application software approach would take three years to recognize an internal return of approximately 33 percent. This makes outsourcing a fiscally attractive alternative for organizations considering the demands of a major software investment, even as it offloads some of the manpower and technological implementation concerns to a qualified external resource.
Looking Forward Technology Is Key
As health care organizations seek to meet the demands of consumers, they will go well beyond simply offering consumerdirected health plans and Internet self-service capabilities. They will employ a potent combination of IT and IT-backed services to streamline the major business cycles and attain high levels of automation, speed, accuracy, and efficiency. The resulting cost savings will provide the funds necessary to make continued investments in growth and success.
