Receivers, Givers, and Takers

I had the good fortune to hear billionaire Dr. Patrick Soon-Shiong discuss how to migrate from an “outcome” centric medical delivery system to evidence based delivery system. This immediately reasonated with my experience in managing evidence based disbaility claims. We had started with the notion of rating driven (outcome based) as opposed to evidence based like Patrick suggested. The effect of changing the paradigm is significant, and frankly, very difficult to implement given the socio-political climate here in the U.S.

Nevertheless, Patrick used the paradigm of Receivers (patients), Givers (providers and payors), and Takers (all others). The secret he suggested was to to follow the patient. So in designing electronic records, we should make EHRs as close to PHRs as possible to ensure “patient” driven use of medical evidence. He said the focus is not healthcare, but on health. He also spoke about the need to have massive data (summarized as appropriate) instantly available to both the patient and the provider to enable optimal decision making. The latter, he contended, will improve the specific medical treatment provided, and thereby improve outcomes. After all, 5% of patients account for over 55% of the healthcare costs. He suggested that decision makers must always ask what additional information is needed that will lead to a different decision. His key inputs that reasonate with my objectives are:

1. Inter-operability of data across systems to ensure that we have “instant” access to health records and health analystics.
2. Patient in the loop technology and universal records to trend and develop optimal care.
3. Quantitiative, predictive, preventative and unbiased care – not dependent on rating codes and financial restrictions.
4. The role of EHR with a focus to enhance the quality of care.
5. Expanded notion of the cloud – “service oriented science”.

All these are valid points, and I will be incorporating his ideas into my work. His coalition for connected healthcare NCHI is an organization worth following.

The Role of TPAs in Self-Insured Healthcare Plans

Third Party Administrators (TPAs) are “outsourced” administrators, and vital to our vision of reducing healthcare costs. The role of TPAs in self-insured employers is to administer the claimant-provider-payee interaction. In self-insured companies, the claimants are employees covered by the plan and the payee is the employer itself. This is unlike the fully insured plan, where the employer pays an insurer a premium to provide healthcare coverage. Ideally, a TPA would provide not only savings in administering the claim due to economies of scale, but also lower the cost of a claim by bringing in a pre-negotiated price structure with providers, and more important, provide claim review to reduce errors by omission or commission. Good TPAs provide a optimum balance in reducing claims costs and providing high degree of employee satisfaction.

Before discussing some of the challenges, it is is important to point out, that over 55 percent of workers with health insurance were covered by a self-insured plan. It is astonishing to note that 89 percent of workers employed in firms with 5,000 or more employees were covered by a self-insured plan.

TPAs are highly fragmented (although there is a move towards consolidation). Of the approximately 1400 TPAs managing healthcare claims, there are about 1000 TPAs who manage less than 10,000 lives. Only a few dozen manage more than 50,000 lives. Smaller TPAs simply become a one-off outsourcing for employers who underwrite their healthcare costs. This poses challenges of quality, efficiency and costs. Therefore chosing a TPA is not a simple task. A subtle challenge is the business model most TPAs follow – they charge per each insured “life”, and hence they are incentivized to save claims processing costs – not the cost of a claim. It is not to say that TPAs do not attempt to reduce the cost of claim. In fact, most use simple rules such as a dollar limit above which all claims are reviewed by experts. The more sophisticated TPAs set different thresholds for different types of claims. Despite these systems, arbitrary limits and rules for auto-adjudication has led to significant losses.

A road map for future blogs on this topic is provided below:

How does a TPA work, and how technology can help them do better?
How to select a TPA, and how to set the appropriate Service Level Agreements (SLAs) to manage them?
The future of TPAs as impacted by the increased role of consumerism in healthcare.

Administrative costs in healthcare

If you notice my vision, it is to use technology to reduce the healthcare administration costs. Frankly, a bit narrow, as improving efficacy in healthcare management and better life styles lead to far better savings that just saving administration costs. Nevertheless, reducing administrative costs by even 1% would be saving several billion dollars.

Medicare has administrative costs of 3 percent (or 6 to 8 percent if support from other government agencies is included), compared to 14 to 22 percent for private employer-sponsored health insurance. The raw administrative costs per patient are as follows: $509 per primary beneficiary for Medicare, and $453 for private insurers (Andrew Gelman). The referenced article is about statistics and not healthcare, although, the analysis is about comparing the benefits of the public option.

My first reaction was that their numbers were low (I expected administration costs to be $1000 per beneficiary) and I thought that they were not including the sum total of all administrative costs. To calculate all administrative costs, a rough order magnitude calculation is as follows (over the next several months, I will validate these numbers):

1) Total healthcare costs excluding disability claims is around 1.5 trillion dollars.
2) Providers and assistants cost about $312B
Note: Average provider makes a burdened salary of $200,000 annually and there are about 800,000 providers, 2 million nurses (at $70,000 annually) and 200,000 technicians at ($60,000 annually)
3) Pharma, Devices $300B
4) Hospitals and emergency centers $500B
5) Miscellaneous costs exclusing administration $150B

This leaves about $240B for administration – a number that seems to agree with the referenced article. If technology can reduce this by 40%, then it will amount to a savings of 6% overall to the healthcare. This points out that as a technologist, I feel that should we achieve this very difficult goal, it will be a great contribution to healthcare. But it is also humbling, if we all got healthier, then the savings are significantly more. A point that we as technologists should not forget.

sEHR – The “Super” Set of all Electronic Healthcare Records

The National Alliance for Health Information Technology has defined the terms EHR, EMR and PHR as follows:

Electronic Health Record (EHR)
An electronic record of health-related information on an individual that conforms to nationally recognized interoperability standards and that can be created, managed, and consulted by authorized clinicians and staff, across more than one health care organization.

Electronic Medical Record (EMR)
An electronic record of health-related information on an individual that can be created, gathered, managed, and consulted by authorized clinicians and staff within one health care organization.

Personal Health Record (PHR)
An electronic record of health-related information on an individual that conforms to nationally recognized interoperability standards and that can be drawn from multiple sources while being managed, shared, and controlled by the individual.

Many have addressed the challenges of migrating from EMR to EHR. Refer to EHR2.0 by Vince Kuraitis JD, MBA for a very concise and insightful summary of the issues surrounding EMR.

I am taking the liberty define the entire collection of health records as sEHR (“super” EHR). A very simple way to look at this is depicted in the adjoining figure:

PHRs are records of individuals which may overlap with EMRs, which are records of healthcare providers. sEHR is the sum total of all of these – one can only imagine the technical, logistics, security, and collaborations issues with managing sEHR. The key item to note is that there are millions and millions of PHRs, thousands and thousands of EMRs, and sEHR. If international standards are established, it is conceivable to have one universal sEHR system, but that may be unrealistic. Establishing sEHR is crucial to achieve interoperability, and it it can be achieved in the U.S., it will be most gratifying.

Getting Ready

The blog has three objectives:
1. Share IT knowledge including IT Governance, outsourcing, architecture, benchmarks and informatics. You will also find commentaries on contemparory IT events.
2. Share healthcare administration challenges and solutions.
3. Build a collaborative network that applies IT expertise to the administration challenges faced in the healthcare sector.

Initially, you will find more blogs on the first objective. However, as we build a network of experts all sharing the vision of using technology to reduce healthcare costs, emphasis will shift to the third objective.

Off-Shoring IT services on the rise?

You would think that with the political climate of keeping jobs on-shore, lack of new IT initiatives, etc. that off-shoring would also decline. However, a survey of more than 200 IT organizations found that among small and midsize organizations that outsource at least part of one IT function, the percentage using offshore service providers rose from 14% in 2008 to 24% this year.

There are many reasons for this:
1. SMBs are seeking to reduce costs.
2. There is a better supply chain of off-shore service providers who cater to SMBs.
3. Traditional offshore providers are doing a better job selling to SMBs.
4. Web-based provider networks are gaining momentum.
5. The recession led to a pent-up demand for IT services.

Is IT expertise a necessity for CIOs?

In a very good article by Chris Curran on September 22, 2009 (Linkedin CIO Forum Discussion), Chris points out that if CIO is part of an executive team that develops IT strategies aligned to the business, then IT experience is needed.

One agrument that favors the “business-centric” CIO is when organizations need IT that meets business needs and is focussed on IT as a strategic component versus an organization that needs efficiency in delivering technology. In the latter a CTO is preferred. A few organizations have a CTO reporting to the CIO to cater to both needs. I have a short monograph on this subject.

Readers are also advised to review my blog on whether smaller organizations can benefit from “On-Demand” CIO and CTO services.

A new look at outsourcing: Outsourcing 3.0

Outsourcing 3.0 will lead the way for organizations to build and manage technology efficiently. Traditional outsourcing (Outsourcing 1.0) was initially very successful as outsourcers learned to deliver IT solutions with the appropriate Service Level Agreements (SLAs) using attractive pricing models.

For more refer to the blogs on USourceIT website (the world’s premier outsourcing firm).

IT Governance for SMEs Desiring to Outsource

IT Governance helps align IT activities to best meet the business requirements of Small to Mid-Sized Enterprises (SMEs). Most Governance methodologies start with alignment at the top. This is a reasonable approach for all organizations where the traditional involvement of board-level executives in IT issues was to defer all key decisions to the company’s IT professionals. IT governance helps facilitate decision making across all stakeholders. This prevents IT from independently making and later being held solely responsible for poor decisions.

For more refer to blogs on USourceIT website (the world’s premier outsourcing firm).

Off-Shoring on the rise for Small to Mid-Sized Enterprises (SMBs)

A survey of more than 200 IT organizations found that among small and midsize organizations that outsource at least part of one IT function, the percentage using offshore service providers rose from 14% in 2008 to 24% this year.

For more information refer to the blogs on USourceIT website (the world’s premier outsourcing firm).