Reducing Costs and Complexity When Both Are Skyrocketing

09 February 2011 | Dr. Dennis Schmuland, Chief health strategy officer, U.S. Health and Life Sciences, Microsoft

​Rising health care costs. Burdensome regulation. Intensifying competition. Inflexible legacy systems. High consumer expectations. Unrealistic deadlines. Margin compression. Welcome to the New Health Economy, where with each passing year, the challenges facing health plans grow bigger and more complex. In 2010, the average health benefit cost per employee rose by 6.9 percent and it's expected to hit 9 percent this year.

In a post-reform world, health insurers face intense pressure to lower medical costs, reduce administrative waste, improve the health outcomes of the members they serve and deliver world class customer service.

Life used to be so much simpler in days bygone when increased administrative and operating costs could be added to the premium. But the new medical loss ratio rules have changed everything by limiting combined overhead and profit to 20 percent. Insurers must now, by law, spend at least 80 percent on health care, with administrative costs and profits not to total more than 20 percent. Anything over 80 percent cuts into profits and anything under 80 percent must be refunded to consumers out of profits.

This means that, for the foreseeable future, while other industries coming out of the recession will be increasing their budgets, hiring and loosening their spending belts, health insurers will be repeatedly cutting budgets, laying off staff and looking for innovative ways to do more with less to make sure that sales, general, and administrative (SG&A) don't consume the entire 20 percent and erase all profits.

And according to a recent McKinsey survey, SG&A costs are the most intransigent because any savings from cost cutting tends to erode with time. That means that health insurers will need to find innovative AND sustainable ways to quickly improve the productivity of their remaining employees and teams and drive down costs of customer service, HIPAA 5010 and ICD-10 coding conversions, fraud and abuse detection, agent commissions and the complexities of doing business. The solution: a more strategic use of technology – and the opportunity for health insurers large and small lies in using your existing technology investments more widely and wisely. Many of the health plans that I work with tend to do the obvious things first, like integrating back end systems and automating transactions only to find later that the savings never really materialized.

These first steps are really just interim fixes. Health insurers need to be thinking longer term and bigger picture about how to use technology to empower staff, providers and members with the tools to make more informed decisions that will ultimately increase efficiency and productivity while reducing costs. And we aren't talking small change or returns on your investments - AHIP recently estimated potential savings of $500 billion to $700 billion from administrative simplification and the cost of doing business.

So let's start with a few places in your business where a shift in strategy, or a realignment of your technology resources, could significantly cut costs and complexity:

  • Make Collaboration Easy for Everyone – Many health insurers are finding innovative ways to use Microsoft Office SharePoint Server as a platform to improve team productivity and lower operational costs, freeing resources for use elsewhere. Like, Independence Blue Cross, one of many health plans that have created a SharePoint Centers of Excellence dedicated to optimizing and standardizing SharePoint use across their company.
  • Eliminate Redundant Applications with Single Multi-Purpose Platforms – If you're like most health insurers, chances are that you've accumulated a hodge-podge of technologies, platforms and systems from many different vendors that are dearly costing you in support, developer, upgrade and licensing. The usual redundancy suspects include directory, file and print messaging and calendaring systems, collaboration tools, enterprise search applications, document management suites, social networking, web conferencing, databases, business intelligence dashboards and reporting tools, as well as custom-developed applications.
    More and more customers are using Microsoft's Connected Health Framework (CHF) for Health Plans as a "real-world," service-oriented architecture solution to drastically reduce their IT complexity and support costs and eliminate redundant applications. One of our customers completed an analysis of their current technologies and found they could cut $6 million in licensing costs by eliminating redundant products related to directory, file and print, business intelligence and database workloads alone.
  • Use HIPAA 5010 Compliance to Gain An Operational Advantage – Design your HIPAA 5010 transaction processes to gain a competitive advantage by using BizTalk 2010 to convert HIPAA 5010 transactions into electronic documents that are human-readable and machine-readable. This way, health plans can tightly couple administrative transactions with customer service, medical management and finance processes – including claims auditing, investigations, authorizations, referrals, fraud and abuse, utilization management, appeals/grievances and enrollment management.
In future posts, we'll cover some additional areas and offer more examples of health plans that are innovatively using tech to cut costs and complexity. Want to tell your story? Shoot me an email and let me know the innovative AND sustainable ways you are using tech to drive down costs and improve productivity across your company.
Dr. Dennis Schmuland
Chief health strategy officer, U.S. Health and Life Sciences, Microsoft

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About the Author

Dr. Dennis Schmuland | Chief health strategy officer, U.S. Health and Life Sciences, Microsoft

Dr. Dennis Schmuland is the Chief Health Strategy Officer, U.S. Health and Life Sciences, Microsoft. He drives strategy across the US Health sector. Read more