The Aetna Cure

By David F. Carr  |  Posted 2005-02-01 Print this article Print

CEO John Rowe cleaned up the troubled insurer's pricing and claims systems. Then, he gave customers more choices. Will that produce long-term financial health?

Bald and owl-eyed, Aetna CEO John W. Rowe is an unlikely hero for a sequel.

Since his arrival at the financially troubled health insurance giant in September 2000, Rowe has concentrated on investing in cleaning up snarled claims systems, healing relationships with physicians and using technology to enable health-savings accounts.

When Baseline visited Aetna two years later for its cover story ("The Aetna Prescription," August 2002, p. 32), the company was working to burnish a tarnished reputation and just beginning to show signs of a turnaround after a year of operating losses totaling $266 million. Still, the results were inconclusive.

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Fast forward to 2004. Aetna has nailed the major strategic objectives laid out by Rowe, such as achieving an operating margin of 6% by the end of 2003. That measure of pre-tax profit as a percentage of sales was up to 7.7% for 2003 and has continued to rise, reaching 9.3% in the third quarter of 2004.

An integral part of that turnaround: better data management. Rowe credits Aetna's Executive Management Information System (EMIS), which was devised to improve the measurement of corporate performance, as well as more effective use of a data warehouse that combines claims data with qualitative measures of medical outcomes.

"The story of technology is embedded in the reason we failed in the first place," Rowe says. Before he joined Aetna, the company had stumbled on the basic task of pricing its policies appropriately to cover medical claims. "We were using stale information to make actuarial assumptions about what was happening in health care," he says. As a result, Aetna was losing about $1 million a day during Rowe's first year at the company.

Rowe says Ron Williams, now Aetna's president and an executive recruited from competitor WellPoint in March 2001, straightened out the mess. Williams, "who is a wizard at this sort of thing," according to Rowe, guided the development of requirements for an integrated planning and performance data reporting system and insisted that Aetna's technologists implement it in short order. A pilot version was launched by July 2001, and it officially went live that September.

Essentially a data analysis and reporting application, EMIS gathers performance data, ranging from profit-and-loss statements to cost-trend and customer acquisition measures, from dozens of operational databases that power finance, claims, and medical-cost and quality-tracking systems. It also reconciles disparities between how data is recorded in different systems so managers get a consistent view—for example, of the same profit-and-loss metrics across divisions and product lines. EMIS consolidates this data into IBM DB2 and Microsoft SQL Server databases and makes it available to authorized users over the Web, using Crystal Reports.

This performance management system helped Aetna understand where it was losing money and what it would have to change to reverse that trend. Initially, Aetna returned to profitability by raising its rates and deliberately driving away unprofitable customers. But over the past couple of years, it has continued to increase profits by whittling away at overhead expenses and medical costs.

David F. Carr David F. Carr is the Technology Editor for Baseline Magazine, a Ziff Davis publication focused on information technology and its management, with an emphasis on measurable, bottom-line results. He wrote two of Baseline's cover stories focused on the role of technology in disaster recovery, one focused on the response to the tsunami in Indonesia and another on the City of New Orleans after Hurricane Katrina.David has been the author or co-author of many Baseline Case Dissections on corporate technology successes and failures (such as the role of Kmart's inept supply chain implementation in its decline versus Wal-Mart or the successful use of technology to create new market opportunities for office furniture maker Herman Miller). He has also written about the FAA's halting attempts to modernize air traffic control, and in 2003 he traveled to Sierra Leone and Liberia to report on the role of technology in United Nations peacekeeping.David joined Baseline prior to the launch of the magazine in 2001 and helped define popular elements of the magazine such as Gotcha!, which offers cautionary tales about technology pitfalls and how to avoid them.

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