The Aetna Cure - 'ZIFFPAGE TITLEContaining Costs '

Containing Costs

Aetna remains reluctant to discuss its systems in detail, even as it boasts about EMIS. In a brief interview following a talk he gave at Forrester Research's Consumer Forum last September in New York, Rowe offered to have Williams give a demo of EMIS to Baseline, saying, "Since he invented it, he really can explain it better than I can." But Aetna's public affairs organization later nixed the offer.

Aetna, however, did respond to questions submitted in writing, and most of the details aren't really secrets.

John J. Bermel, head of the dedicated finance team at Aetna, gave a public demonstration of EMIS at an investor's conference last year, saying, "This is a real friend to the management team, and it's an integral part of our success." In addition to bringing together various operational data, EMIS enforces common definitions of profit and loss and other performance measures across divisions so that managers are perfectly clear about their accountability. "We like to say there's no place to hide," he said.

EMIS allows Aetna to implement a "progressive monthly close," meaning that managers at every level get a weekly performance snapshot rather than having to wait for the official end-of-month closing of the books for accounting purposes, according to Bermel. As a result, management responds faster when goals aren't being met, he said.

In addition to EMIS, Rowe also touts Aetna's 14-terabyte data warehouse of medical-cost and medical-quality data as a key element of initiatives to deliver more cost-effective yet higher-quality health care. The business unit responsible for that analytical database, formerly known as U.S. Quality Algorithms, has been more tightly integrated with the core organization and is now known as Aetna Integrated Informatics.

As a physician himself—a gerontologist who moved into hospital management and was running Mount Sinai Medical Center in New York before he was recruited by Aetna—Rowe is especially enthused about using this data to drive down medical costs by emphasizing prevention, rather than limiting care.

For example, Aetna turns to this database to identify surgeons with the best record for performing an operation successfully, with the fewest complications. In some of its newer plans, Aetna will steer consumers toward the better surgeon with an incentive of a more generous co-payment, even though Aetna will have to pay that physician more than his less-talented peers, Rowe says. The payoff comes in the long run when the patient requires less follow-up care. "If you believe in the business case for quality, that's the way it works out," he explains.

Used another way, the medical data warehouse helped Aetna spot some 160,000 examples of potential medical errors. Aetna will alert a physician if, for example, a 68-year-old patient who has been prescribed the anti-cholesterol drug Lipitor appears not to have been given the recommended liver function test. "In that case, they should have the test, and we'll pay for it, so we'll call the physician and point that out as a possible oversight," Rowe says. "Patients love it. Employers love it. And physicians love it—they don't want to make a mistake."

In contrast, Aetna—prior to Rowe's arrival—focused on the health maintenance organization (HMO) business model of its biggest acquisition, U.S. Healthcare, and had damaged its reputation with physicians and consumers with abrasive, tightfisted control over medical choices.

Aetna was one of several large health insurers targeted in a class-action lawsuit by physicians alleging deliberate underpayment of claims. In May 2003 Aetna agreed to a $170 million settlement with the physician groups and promised to reform its business practices. (The total cost, including the money Aetna will spend internally to change its systems and way of doing business, is estimated at $500 million.)

Meanwhile, Aetna has tried to take some of the guesswork out of the claims submission process with an application that lets doctors' offices preview over the Web how Aetna will handle a claim even before the claim is submitted. The setup is intended to help doctors meet Aetna's requirements for getting claims paid right the first time, rather than having to repeatedly resubmit them.

Still, Aetna has not entirely won over doctors. In January, for example, an orthopedic surgeon from Pompano Beach, Fla., initiated yet another class-action lawsuit accusing Aetna and other insurers of conspiring to shortchange doctors, partly through the use of computer software that systematically reclassifies claims into lower reimbursement categories.

Nineteen state medical associations that participated in the earlier lawsuit had made the same charge. Tim Norbeck, executive director of the Connecticut State Medical Society, says those groups are still haggling with Aetna over its compliance with the part of the settlement that dealt with changing how it handles claims. "We have seen incremental change but not dramatic change yet," he says.

Meanwhile, Aetna eliminated two of the four medical claims systems that previously powered its operations, allowing for more consistency in this process. The surviving systems are also more modern and better able to "auto-adjudicate" claims, meaning that the system approves or rejects claims that don't require manual review. In 2002, Aetna said its most capable system auto-adjudicated 62% of claims, while parts of its business still ran on a claims system that lacked this capability. Today, Aetna averages about 70% auto-adjudication across its business.