Healthcare Cost Analytics: A Leading Digital Strategy

Transcription

1 Healthcare Cost Analytics: A Leading Digital Strategy Advanced Analytics is Enabling Substantially Improved Cost Control for U.S. Employee Healthcare Costs

2 Digital Strategy and Analytics Companies are beginning to distinguish between Digital Strategy and Traditional Information Technology Strategy. Traditional Information Technology Strategy has been a technological response to a business situation whereas Digital Strategy is a business response to a technological situation. While Information Technology Strategy primarily responds to demand from the rest of the business to help address Information Technology related opportunities to drive efficiency and cost effectiveness, Digital Strategy actively considers the latest disruptive technologies and seeks new ways to create business value. This paper addresses how Chief Information Officers (CIOs) can leverage advanced analytics (and prescriptive analytics in particular) enabled by cloud technology to invoke significant U.S. employee healthcare cost control quickly and with virtually no consumption of scarce Information Technology resources and without adding Information Technology risk. Analytics and cloud technology are both currently considered to be disruptive technologies. Furthermore, implementation of the referenced healthcare cost containment solution can usually be completed within 90 days of deciding to move forward. Therefore, CIOs can leverage the solution as an example of applying disruptive technologies to generate current year material business value, thus earning the credibility to pursue additional disruptive technologies to drive comparable value in other important business areas. This is in spite of the ever present Information Technology (IT) pressures to drive year or year unit costs and IT budget efficiencies. History of the Movement of IT Strategy to Digital Strategy and Disruptive Technologies The expansion in focus from Traditional Information Technology Strategy to Digital Strategy is a relatively recent phenomenon. And the evolution of Enterprise IT from an IT-centric to a Digital centric strategy model is well known among the top IT consultancy firms. In Gartner s 2014 CIO Agenda Report they ve articulated the history of Enterprise IT as being composed of three phases: the IT Craftsmanship phase, which ushered in the mad inventor Y2K and dot.com bust era; the Industrialization of processes, services and standards and smart sourcing phase, an era just ending; and the Digitalization phase, or era, which is the third major era of Information Technology following the Craftsmanship and Industrialization era, and which is upon us now with most companies already straddling the line between the second and third era. To be effective companies will need to discover how best to do both. 1 1 Taming the Digital Dragon Gartner, 2014 CIO Agenda Report, pg. 7. Dynamic Health Strategies, LLC 2

3 This digital strategy requirement is being driven by the realities of IT today and its changing, emerging roles as a significant part of the overall strategy of enterprises today. Information technology has become a pervasive part of doing business in nearly all organizations during the last decade. It has also dramatically shifted roles, moving from automating back office processes to becoming a strategic enabler of new offerings and new ways of doing business. 2 IT Strategy is a technical answer to a business question: How will IT help the business win? It assumes the business strategy is set, then considers how to use IT to make that strategy successful. IT Strategy is usually conducted downstream of/ after business strategy. Digital Business Strategy, however, is a business answer to a digital question: How should our business evolve to survive and thrive in an increasingly digital world? It is not a separate strategy, but instead a lens on business strategy. All aspects of the business strategy should be informed by digital considerations. 3 At their 2013 Accenture Technology Vision 2013 conference Accenture declared every business is a digital business. At the time Accenture didn t see it as a trend for last year or this year. Instead they saw it as the future. At this year s conference however, Accenture reported they saw the beginnings of business transformation based on a digital model. They went on to add, they ve seen a marked upswing in digital and spoke of bold trends becoming characteristic of larger enterprises, which have been perceived by some as lagging in converting to digital businesses. While Big Data advanced analytics, cloud, social and mobile still drive these trends, the focus now is on new ways that these technologies are being woven into the next generation of business strategies across every industry. As new Disruptive Information Technologies emerge at an accelerating pace, it is becoming increasingly important for the emergence of Disruptive Technologies within their industry as well 2 John Voloudakis, EDUCASE Review, vol. 40, no 2 (March/April 2005) Dave Aron Gartner The Difference between IT Strategy and Digital Strategy November 12, 2013 Dynamic Health Strategies, LLC 3

4 as adjacent industries which may be driving one or more of the emerging technologies at a faster rate. For example, the Healthcare industry had been driving harsh environment nanotechnology which may soon enable substantial benefits in the otherwise unrelated oil & gas industry. As diagnostic and dispensary device nanotechnology continues to shrink and become increasingly durable, we are rapidly approaching a time when reservoir monitoring could effectively replace modeling as devices approach the 100 hundred nanometer threshold where they could easily pass through formation pore throats without creating a risk of constricting oil flow. In the example above the Healthcare industry has been the chief pioneer to date while oil & gas and other industries have remained on the sidelines watching with great anticipation for the technology to become viable. Another major factor is that CIOs are being driven to not only reduce cost and drive business efficiency but also to contribute demonstrable new value. Like venture capitalists, CIOs should actively manage their IT portfolio in a way that drives enterprise value and evaluate portfolio performance in terms that business leaders understand value, risk and time horizon to reward. 4 Where the CIO is unable or unwilling to rise to this new challenge Chief Digital Officers (whether or not they are named as such) are being named outside of the IT organization. Disruptive Technologies Definitions of Disruptive Technology 1. Disruptive innovation 5 2. A disruptive innovation is an innovation that helps create a new market and value network, and eventually disrupts an existing market and value network, displacing an earlier technology 3. Harvard Business School Professor Clayton Christensen, who is the architect of and the world's foremost authority on disruptive innovation, defines Disruptive innovation, a term of art coined by Mr. Christensen, as a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors 6 Gartner defines disruptive technology as technology changes that have a Transformation Impact on products, services and processes 7 The concept of disruptive technology continues a long tradition of the identification of radical technical change in the study of innovation by economists, and the development of tools for its management at a firm or policy level. 8 The chart below depicts how many of the disruptive technologies over the last 30 years has led to the digital enterprise that leverages several current disruptive technologies such as cloud 4 Deloitte, Technology Trends 2014, Disruptors, CIO as venture capitalist pg. 7 5 Wikipedia 6 Key concepts tab, Clayton Christensen, 7 Gartner point of View Bart Mellink,6 June Wikipedia Dynamic Health Strategies, LLC 4

5 mobility and social media and advanced data analytics (Big Data Information) as defined by Gartner. Disruptive Technologies specifically leading to Advance Analytics In his CIO Insight article, The Future of IT 9, Samuel Greengard noted that the history of IT is littered with innovative and disruptive technologies. In the 1960s, mainframe computers revolutionized the way businesses managed information. By the 1980s, word processors and PCs automated office tasks, and spreadsheets yielded new insights into better business practices. Starting in the 1990s, the Internet and mobility unleashed a torrent of change that put the IT department at the center of the enterprise. Powerful and efficient enterprise systems were the order of the day. But as Greengard goes on to state, these developments pale in comparison to the tsunami of change washing over IT organizations today. The introduction of ipads and iphones, social media, big data, and cloud computing have unleashed profound changes that far exceed the impact of each of these devices or systems alone. The combined impact of these technologies is redefining the way organizations and people interact. It's also revolutionizing how businesses harness data, information and knowledge and put them into play. "The IT department is undergoing a remarkable transformation," says David Nichols, Americas CIO Services Leader for consulting firm Ernst & Young. Some of the disruptive technologies shaping the world in 2014 include mobile technologies, social media, cloud and Big Data/analytics per Gartner. While cloud is also a key component of the analytics based healthcare costs solution referenced in this paper, the solution is mainly driven by breakthroughs in Big Data and analytics as a disruptive Information Technology. 9 The Future of IT Samuel Greengard, Dynamic Health Strategies, LLC 5

6 Analytics is generally viewed as being of at least four types. The first two types of analytics have long been referred to as Business Intelligence which is comprised of descriptive and diagnostic analytics. Descriptive analytics answers the question what happened whereas diagnostic analytics focuses on the answering the question why did it happen. The second two types of analytics are often referred to as advanced analytics. Advanced analytics is comprised of predictive analytics which address the question what will happen and prescriptive analytics which answers the question what should I do? The referenced Healthcare cost containment solution is an application of the highest level of analytics (prescriptive) which is only just beginning to emerge. Healthcare Issues in Self-Insured Organizations Large, self-funded employers are facing problems with increasing healthcare costs and have the need to better understand the data to help make decisions that will improve quality of care and their bottom line. Since the passage of the Patient Protection and Affordable Care Act of 2010 (ACA) this has increased the costs of self-funded plans in several ways regardless of whether they were Grandfathered or Non-Grandfathered plans. These extra costs come from the following: No annual limits on essential health benefits No pre-existing exclusions are permitted, regardless of age Dependent coverage for children up to age 26 required, even if dependent qualifies under another employer s plan Plan sponsors of group health plans cannot have a waiting period to receive benefits that exceeds 90 days Plan sponsors cannot use the reduction in cost-sharing from participating in a wellness program to calculate minimum value with the exception of tobacco cessation programs For Non-Grandfathered plans the following additional costs risks apply: Out-of-pocket maximum expenses, including deductibles, copays, and coinsurance must not exceed a specified dollar amount for essential health benefits (for 2014, the maximum is $6,350/$12,700 for single/family coverage) Routine patient costs for clinical trials must be covered In addition there are new fees which all fully insured and self-funded plans must pay every year: Patient-Centered Outcomes Research Institute (Comparative Effectiveness) Fee Annual Health Insurance Industry Fee Transitional Reinsurance Program Assessment Fee Cadillac Excise Tax (tax for high-cost plans) In addition many Stop-Loss insurance providers, which commonly provide to most self-funded plans, often have various operational and reporting requirements that can put at risk a selffunded plan s ability to pay claims to its employees and their health care providers. Dynamic Health Strategies, LLC 6

7 These increases in real and potential plan costs above due to the changes to self-funded plans brought about by the ACA auger for more cost control in the claims payment as tracking the efficacy of the various health management and wellness programs strategies a self-funded organization adopts to reduce overall healthcare costs, create better health benefits and overall annual healthcare spend. The Solution Companies and organizations are realizing they need a better tool to provide quality management of long-term strategic savings instead of continuing their short-lived tactical approach. Just like any other management tool, they need an executive dashboard to monitor the most critical initiatives. Auditing reports of claims, payments, and contract compliance needs to be continuously and regularly provided so they can react quickly. Smart reporting triggered by specified parameters is ideal for this service. Push and pull reporting of business critical information is essential. Dynamic Health Strategies (DHS) provides this service and significantly more. More importantly, their services provide ad hoc reporting using all the data.all the time. DHS are experts in population health management and data analytics. DHS helps its clients monitor the health of the population and target cost saving / avoidance initiatives that focus on health improvement and effective and efficient use of resources. This cloud-based advanced analytics solution is used by self-insured companies / organizations with a significant number of U.S. employees (ideally, at least 2,000 employees) to better manage annual employee healthcare and healthcare costs. The DHS solution, HealthSpective, is primarily based on aggregate data from claims, employee data, and many sources of medical and pharmaceutical data, which the company / organization authorizes DHS algorithms to review and prescribe a series of specific actions to reduce and/or avoid healthcare costs. These actions consist of recommendations for their people to follow, the amount of time it would take, the cost, the return on investment (ROI), and their quality of life. The following diagram provides a quick view of the type of data feeds the HealthSpective system collects for its prescriptive analytics and produces a compressive list of recommendations depending on your company / organizational criteria. Dynamic Health Strategies, LLC 7

8 Ongoing Prescriptive Analytics Employee health, their families, employee locations, appropriate medical care, medical protocols, medical programs, medications, diseases, and the company in general change frequently and prescriptive data analytics immediately adjusts the recommendations to avoid an unexpected rise in healthcare costs and therefore, avoid an impact to the bottom line, employee productivity, employee benefits, and employee job satisfaction. DHS differentiates itself with their HealthSpective service from other analytical service providers by: Providing advance prescriptive data analytics on a periodic basis. Minimizing the need for additional consulting fees. Providing a business case for investment in wellness. Providing simplified querying capabilities. Providing a multi-disciplinary team of public health and information technology expertise. Enhancing lesser analytical company s limited data by complimenting it with their own prescriptive analytics. The Value-add for Human Resources Human Resources obtains value through prescriptive analytics focused on many of the features within planning, reporting, and benchmarking: Planning Reporting Providing a strategic roadmap for a benefit plan that can drive wellness interventions. Monitoring the benefit plan and its compliance, effectiveness and strategic initiatives. Providing a business case for intervention or wellness offerings. Providing a tool to compare budget to expected. Providing a comprehensive assessment of the benefit plan value and not only cost. Reporting on vendor performance, claims accuracy, metric utilization, and trends. Providing auditing reports on benefit plans. Calculating an unbiased ROI and effectiveness for any wellness program and initiatives already in place. Note: Other analytic service providers tend to report only on the service they provide, not necessarily whether service is actually working. This is similar to the fox watching the hen house analogy. Monitoring gaps in care, so these can be closed. Benchmarking Incorporating clinical effectiveness research along with clinical practice guidelines to compare (AHRQ, IOM, CDC, NIH, SEQA, WHO, SEI, ABA, AHA, WJF) Offering benchmarking methodology in a scientific-based approach. Providing recommendations on where you should be not whether you are better than the others. Non-prescriptive analytics or limited data analytics can t be accurately compared to or benchmarked against the detailed and qualified prescriptive analytics approach. Dynamic Health Strategies, LLC 8

9 The Value-add for Employee Risk Management Similarly, Employee Risk Management obtains quality management and value through prescriptive analytics focused within the features of functionality, tracking, and reporting. Functionality: Tracking: Reporting: Linking data so claims are paid from the appropriate budget. Identifying people who are high risk for worksite injuries and catastrophic events. Identifying programs to educate the workforce on health, safety, reducing emergency care. Recommending programs to improve productivity and reduce absenteeism. Identifying actual members, assessing education and tracking the effectiveness of occupational health and safety matters. Providing an up-to-date report on most prevalent workplace injuries. Providing easy and fast information to onsite clinician, so employee can be immediately triaged and/or treated. Tracking and trending productivity and injuries by job, demographics, and other variable criteria. Tracking overpayments, ineligible members, and questionable procedures and therefore protecting the bottom line. The following is a sample report of an actual client and their silent members. Silent members are those employees and/or family members who have never seen a doctor. Therefore, there were no historical claims to analyze. By performing an analysis of current claims, nearly $8M was spent on unexpected healthcare costs. Through prescriptive analytics, HealthSpective was able to look back and identify those silent members and then recommend the necessary medical programs these individuals would need and project the number of dollars saved by avoiding additional unnecessary and costly medical care in the future. Industrial Client 25% 20% 15% 10% 5% 0% Rate of Silent Members PY PY Exp CY CY Exp Dynamic Health Strategies, LLC 9

10 Identified silent members benefit costs jumped $7,862,086 between the previous year and current year. Total number of members dropped from approximately 18k to below 13k in the current year. Yet, the rate of silent members continued to increase. Unexpected healthcare costs would have risen significantly again without prescriptive analytics identifying those members and recommending the appropriate medical programs and/or other forms of controls. Although medical treatment and costs were going to be required, better projections of silent members can be achieved. Once the silent members are identified through the HealthSpective system, then the appropriate programs would be recommended and implemented. Therefore, the estimated potential costs avoided is $554,624 An Example of the ROI Economics for Prescriptive Advanced Data Analytics Assuming a 10k US employee self-insured company, using prescriptive advanced data analytics, this healthcare opportunity can present itself with a ROI within the first year of implementing the recommendations and between 100:1 and 400:1 cost savings over the next several years. Cost avoidance, increased revenue, and/or improved productivity are also realized within these ratios. DHS s HealthSpective system calculates not only an ROI for wellness and interventions but it also provides an unbiased ROI. The value proposition is that it provides a closer and timelier look at budget versus actual. In addition, it provides a business case for any wellness investment. Opportunity Economics Leverage disruptive technologies (advanced analytics and cloud) to achieve a significant reduction in US healthcare costs ($30m-$90m over 3 years) Expected ROI is between 75:1 and 226:1 (assumes 3 years and 10k employees) Investment $75k implementation cost plus $324k operating cost ($9k/month for 3 years) Benefit $1k-$3k/employee/year = $10m-$30m across 10k US employees x 3 years Implementation Time Less than 90 days to insight Other Resources HR Benefits Analyst involvement; Virtually no incremental IT resources Risks No notable business risks. Employees don t follow recommended programs Supplier Dynamic Health Strategies For a CIO, recommending a strategic service such as DHS s HealthSpective would increase share-holder value. There would be: Dynamic Health Strategies, LLC 10

11 No IT resources required. Although there may be a need for IT to provide initial data feeds from HRIS. No IT Architecture Implications, since it s a cloud-based solution. No known IT financial, security, application, or platform risks. Chief Information Officer Call to Action Companies are beginning to appreciate the difference between Digital Strategy and Traditional Information Technology Strategy. CIOs must rise to this new opportunity and demonstrate companywide digital leadership by seeking out a carefully selected critical few applications of disruptive technologies to generate immediate bottom line value while in parallel continuing to drive efficiency and cost effectiveness demanded by the rest of the business. If a CIO is unable to provide both, then their company will need to find an alternative means of driving the digitalization side outside of the CIO s responsibilities. In some cases companies will accomplish this through the creation of a Chief Digital Officer role, but in either case, it is imperative for companies to be able to fulfill demand for both traditional information technology services and drive digitalization. To that extent it will generally be in the best interest of a CIO to take the lead in digitalization assuming they have the appetite and requisite capabilities to do so. Otherwise, the role of IT under the direction of the CIO may be expected to become increasingly about commoditization and driving down unit costs with minimal discussion on the value side. This paper has discussed how CIOs can leverage advanced analytics (and prescriptive analytics in particular) enabled by cloud technology to invoke significant U.S. employee healthcare cost control quickly and with virtually no consumption of scarce Information Technology resources and without adding Information Technology risk. Analytics and cloud technology are both currently considered to be disruptive technologies. The next steps are straightforward: - Frame the Healthcare Prescriptive Analytics opportunity, - Validate the economics specific to your company, - Contact DHS to verify timelines, costs, etc. - Implement the DHS [Prescriptive Analytics] HealthSpective solution as your first Digital Strategy win, - Solidify your Digital Leadership Dynamic Health Strategies, LLC 11

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