Largest Financial Crisis for Employers

Health care is one of the largest sectors of the U.S economy and accounts for 15% of the gross domestic product (GDP). It is also the sector that is facing one of the largest financial crises in a decade. Health benefits costs for Fortune 1000 employers have seen double-digit increases over the last 5 years and are projected to increase by more than 15% in 2003 – the largest increase in more than a decade.

Even though this is a trying time for human resource executives since they have to balance a weak economy, rising benefits costs and sometimes a shrinking workforce, Chief Financial Officers (CFOs) view this as one of the top issues affecting corporate financial performance. According to Richard Strasser, Executive Vice President and CFO, United States Postal Service, “our healthcare costs last year alone were $4.2 billion. It is a component of our finances that’s important to manage to the maximum extent possible so that we can hold postage rate increases to a reasonable level.”

Health-benefits Supply Chain

During the Internet heydays when the focus was on top line growth, health benefits costs did not show up on the radar screen of most CFOs. Once the bubble burst and revenues flattened, CFOs started to recognize the impact of health benefits costs on corporate profitability. In order to comply with Sarbanes-Oxley and sign off on corporate financial statements, CFOs need timely visibility to health benefits spending. Unfortunately, access to financial performance measures that provides visibility and accountability for investments in health benefits has been hard to come by.

Two reasons account for the difficulty that CFOs have in linking health benefits to the corporate bottom line. First, health benefits data within a corporation sit in functional silos that are not integrated. For example, benefits manager responsible for the pharmacy or medical benefit do not always have visibility to employees who are on disability leave, creating a fractured view of total health benefits costs. Any programmatic strategy to reduce pharmacy costs does not capture the impact on employee productivity and in turn, total lost revenue per employee.

Second, the procurement and delivery of health benefits is managed as a supply chain, albeit inefficiently. Employers purchase a multiyear, generalized supply of health benefits from insurance companies (health plans) because sufficient data is not available to understand exactly what types of services will be needed, at what time, and how much. This “overstock” is then consumed by employees, their dependents, and retirees over the term of the contract, where sometimes the stock is too much, sometimes too little, and sometimes the wrong type. Employers have been unable to hold their health benefits suppliers accountable to financial performance targets and Six Sigma quality levels, even though they have been very successful in their other supply chains within retail and manufacturing.

Do Existing Technology Solutions Make the Cut?

A number of companies provide health plans, hospitals, and employers with aggregate data that addresses pharmacy cost or medical cost by health plan. These solutions lack an enterprise technology platform that enables every user with the same set of facts, extends beyond the enterprise to suppliers, and scales to analyze large volumes of health claims data in real-time.

Data integration challenges abound given the number and volume of heterogeneous data sources that need to be integrated to address specific business questions. Data needs to be extracted, transformed and loaded on a monthly or quarterly basis from claims systems for pharmacy (Merck-Medco, Advance PCS), medical (United Healthcare, Aetna, Cigna, Blue Cross Blue Shield), disability (MetLife), enrollment, absence, health surveys as well as from existing ERP and CRM systems.

Additionally, these solutions play on both sides of the fence and do not enable employer purchasing power in the health benefits supply chain.

Health benefits Supply Chain Intelligence (SCI) Software

A new category of enterprise software delivers on the promise to solely enable employer purchasing power in the health benefits supply chain and drive accurate financial reporting of health benefits strategies. Health benefits supply chain intelligence software provides a suite of packaged analytic applications that encapsulate the health benefits supply chain and complements existing investments in enterprise resource planning (ERP) systems like Peoplesoft and SAP.

Software that enables health benefits supply chain intelligence should have the following components:

Executive dashboard for Finance and Human Resources:
CFOs and human resource executives should have timely visibility to the financial performance of health benefits through a web-enabled Financial Performance Management (FPM) dashboard that monitors financial, enrollment and utilization metrics. FPM enables:

A single view of health benefits spending across Finance and HR to be in compliance with Sarbanes-Oxley reporting;

Efficient management of health benefits budgets and strategies; and

A link between the clinical drivers of health benefits costs and their impact on employee productivity (total lost revenue per employee) and operational performance

Packaged analytic applications:
For employers to make timely business decisions on health benefits strategies and monitor the performance of their suppliers, analytic applications that provide focused functionality towards HR benefits managers need to be enabled. They should include packaged key performance indicators for health and productivity, best-practice metrics for the top conditions like diabetes, asthma, heart disease, high-risk pregnancy, and depression that drive over 80% of employer costs, and analytic workflows that proactively monitor the performance of health plans, hospitals, disease management programs, and pharmacy benefit managersv.

Supply Chain Analytics (SCA) provides business users with standard and ad-hoc reports that integrate data across ERP systems, pharmacy, medical, enrollment, short-term and long-term disability (STD/LTD), workers’ compensation, and health surveys to make informed purchasing decisions.

Supplier Performance Management (SPM) includes packaged analytic workflows that enable effective health benefits strategies such as benefit plan consolidation, targeted disease management programs, and implementation of efficient hospital networks.

Permission-based health portal for beneficiaries (employees, dependents, and retirees):
Beneficiaries play a pivotal role in the health benefits supply chain and demand quality of care that is balanced with the cost of health benefits. Beneficiary Relationship Management (BRM) allows employers to implement a permission-based health communication channel with beneficiaries to improve quality and outcome of care, and influence behavior towards health benefits offerings in order to lower costs.

Domain expertise:
Health benefits SCI software should include domain expertise pertaining to benefits, clinical drivers of cost and utilization, and enterprise technologies like business intelligence and ERP in the product and the people. It should come packaged with mature data models that can satisfy the predominant business requirements of customers and be extensible to facilitate easy customization.

As employers fathom the impact of looming double-digit increases in health benefits costs and weigh their options, they should strongly consider health benefits SCI software to enable strategic decision making across the health benefits supply chain and provide CFOs the visibility to the financial performance of health benefits.

Sudhir Anandarao is the Vice President of Product Management at VitalSpring Technologies.