Human Capital & Careers

Data Management: Applying a Little Leverage

Increasingly, companies are turning to technology to help them negotiate better deals with health-care insurers.
Jennifer CaplanNovember 1, 2002

These days, you’d be hard-pressed to find a publicly traded company that doesn’t use supply-chain software or customer relationship management (CRM) applications. The tools, often browser-enabled, have enabled companies to gain a measure of control over functions that were once considered too far-flung and too complex to administer from a single point of entry.

But to date, few corporations have applied technology to costly — and often unmanageable — health-benefit programs. A handful of corporates, however, are starting to view health-care provisioning as just another supply chain. Likewise, some employers now say satisfying their employees’ health-care needs is simply CRM turned inward.

The change in thinking can’t hurt. Experts point out that skyrocketing health-care costs have been fueled, in part, by a lack of information. They assert that many corporations don’t track their own health-benefit plans, and therefore don’t possess sufficient data to make informed decisions when purchasing new plans. That benighted state has given insurers the upper hand when negotiating with corporate customers. Insurers have tended to draw up contracts in their favor.

This is hardly surprising. For the most part, insurance companies are not eleemosynary institutions. What’s more, most corporations still rely on utilization reports provided by their insurance vendors (or consultants) when assessing the impact of their plan designs. “In health care, companies have been expecting the suppliers and brokers to tell them what their utilization is, and then to price it,” says Sreedhar Potarazu , CEO at HR application service provider VitalSpring. “This leaves companies virtually no ability to negotiate.”

Plan sponsors who want to track health-care data face some daunting challenges. Most data about hospital and doctor utilization, pharmacy information, and workers compensation and disability comes from different sources. “There are many factors that go into the cost equation, and the VP of HR gets a very segmented view of those drivers,” says Potarazu.

If companies are going to achieve their financial targets, says Potarazu, “they need to have a handle on all of these metrics together on a constant basis.”

When calculating the average medical costs for a diabetic employee, for example, managers need to know that person’s medical and pharmacy expenses, what the cost was for lost time from work, and the cost of loss of productivity. They then need to calculate how the costs for diabetics will affect net health-care costs — and the bottom line.

Leslie Schneider, an HR specialist at consultancy HayGroup, says that most companies don’t take a close enough look at their claims paid, let alone the kinds of procedures that are being performed most regularly, or the ways in which vendor contracts differ. If companies are going to control soaring costs, Schneider contends, plan administrators must get a better handle on where the bulk of their medical expenses are coming from.

Armed with plan data, corporates can tailor programs to reduce their biggest costs. Ultimately, Schneider believes employers should be able to trace the impact of a design change on all the variables that affect net health-care costs.

Good luck. “The employer is completely in the dark in terms of what their net health-care costs are and how each one of these variables is being affected by the strategies they put in place,” says Potarazu.

At best, plan administrators only know how much they paid on a medical claim, or how much they paid on pharmacy costs. Few have a good understanding of their total integrated costs, Potarazu maintains. “Until now, companies have been doing little more than waiting for next years premiums to kick in and holding their breath,” he says.

Better data may prove helpful in giving employers a better understanding of what is driving costs. It can also help a plan sponsor hold a vendor’s feet to the fire. Explains Potarzu: “If an employer is negotiating with a supplier for a prescription drug benefit, for example, they can say ‘We’ll pay you x dollars, but your success is going to be measured by x number of individuals converting from this name-brand drug to the generic version,’”

In fact, data management has become so critical that some large carriers are beginning to offer clients business intelligence tools as part of their services. Cigna Corp.’s Web site, for instance, features tools that enable corporate clients to better monitor spending and utilization patterns. The site tracks a number of health-care categories, such as number of claimants, submitted charges, benefits paid, types of service, savings, inpatient/outpatient services, and in-/out-of-network utilization. Cigna also alerts customers when significant changes appear in the data.

In addition, specialty vendors offer business intelligence applications specifically geared toward reducing health-care costs. VitalSpring, for one, provides reports that allow companies to model their health-care benefit costs and gauge the financial impact of their plan designs on budgets and overall corporate performance. VitalSpring’s software also enables employees to obtain information about the programs and benefits offered by their employer.

“Employees are an important part of the problem,” says Potarazu. “Employers need to optimize employees’ ability to make better decisions.”

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