Insurers Tap Technology to Lower Cost
UnitedHealthcare did it. Cigna is trying to do it now, Humana is doing it in phases, and WellPoint sets the industry standard. Improving information technology performance is an imperative for health insurers as costs continue to riseup 13.7% last yearand customers demand more choice and flexibility.
Aetna's rivals have been making concerted efforts to rev up their means of interacting with providers and consumers. None has done so more effectively than WellPoint, which reported aggregate profits of $1.05 billion over the past three years. "The use and leveraging of technology to reduce administrative costs and improve customer service is one of our core goals," says Marshall Jones, WellPoint's CIO.
WellPoint's use of Internet technology is a means to the end of enabling highly flexible health plans that WellPoint customers can tailor to their own needs. Last year, WellPoint customers got the ability to pay premiums on the Web with their credit cards, and earlier this year some Preferred Provider Organization members gained access to tools from a company called Subimo, which help them choose hospitals and research conditions and procedures.
On the provider side is WellPoint's Provider Access site, which gives doctors and hospitals access to claims, coverage, and payment informationthe same information seen by WellPoint customer service personnel. Benefits administrators at large customers can use a service called mybcclink.com that allows users to instantly check or change eligibility records and other data. "Our whole approach to our providers is that access to real-time eligibility and claims status increases customer satisfaction and reduces administrative costs, thereby providing return on investment for us," says Jones.
WellPoint also is focused on its back-office systems, and now makes automated decisions on more than 50% of claims. "Processing claims is meat and potatoes for this industry, and any company that doesn't do it well is going to be in trouble," says Jones, who came to WellPoint from Amoco in early 2001 and now oversees an information technology staff of about 2,000 people.
If anyone doubts the importance of a health insurer's core systems, the experience of Oxford Health Plans is a cautionary tale. In 1997, the HMO imploded when it botched its migration to a new claims processing system. The company couldn't bill some customers for months. Oxford bailed itself out technologically through wholesale outsourcing of its systems to Computer Sciences Corp., but its stock went from over $80 per share to about $6, and its market cap is still only 60% of pre-disaster days.
UnitedHealth Group, which passed Aetna last year as the largest health insurer, began a big information systems upgrade in 1998, embarking on an effort to rationalize its own acquisitions by, for example, moving from multiple platforms claims-processing platforms to just two. The Minnesota insurer, which focuses its efforts through a unit called UnitedHealth Technologies, has spent $1.4 billion on technology since 1998. "Their reputation has improved,"says analyst Greg Crawford, citing the Minneapolis insurer as an industry leader at deploying Electronic Data Interchange (EDI) to handle claims processing.
At Cigna, the third-largest U.S. health insurer, an ongoing effort known as the Transformation Initiative started rolling out new systems in late 2000. Last year, 80 system applications were introduced or enhanced; the number of medical claims systems has been reduced from 15 to two, and the number of eligibility systems has gone from 15 to one. Web services have been introduced. But the financial and marketplace results have been disappointing. "They should be growing membership, but they are not," says JP Morgan Securities analyst Lori Price.
Humana CIO Bruce Goodman says his company started from about the same base as Aetna in terms of technological capabilities and legacies but is a little ahead in its turnaround. Humana has developed an entirely new IT support system, still mainframe-based but using IBM's DB2 database instead of Computer Associates' IDMS, for all new products. Existing products will migrate over time. The ultimate goal, he says, is "delivering the total, hassle-free experience, complete with personal health pages."
WellPoint takes a long-term focus on systems. "We refine on an ongoing basis," says Jones. WellPoint's business units identify their goals and make their plans relative to a three-year strategy. Then the technology requirements are identified and funding OK'd, before the project gets under way.
The Thousand Oaks, Calif., company, a for-profit successor to the former Blue Cross of California, is the leader in other areas, too. Chief executive Leonard D. Schaeffer is considered one of the industry's best and most innovative managers. For instance, WellPoint helped persuade the Food and Drug Administration to reclassify several prescription medications, including Claritin, to nonprescription status in order to lower costs.
Using technology to good effect is more important to Jones than the technology itself. "We're ahead of some people in terms of things like electronic funds transfer and Web technologies," he says. Still, "the mainframe will continue for some period of time to be a very important component of our infrastructure."
WellPoint has been sued by physicians and medical societies over claims processing and reimbursement rates. But WellPoint has managed its own skein of acquisitions with few of the problems that have plagued Aetna. Since becoming a public company, WellPoint has bought several health plans, including its March 2001 acquisition of Blue Cross and Blue Shield of Georgia and the purchase of RightChoice Managed Care, completed in January.
"We have spent a lot of time on integration, and there is no one answer on how to do it," says Jones. "We have acquired superior technology and replaced ours with it, we've standardized onto our systems where we could. Our rule is: First do no harm. Don't harm the business. Systems integration is not nearly as important as business integration, so first we figure out the business."