a core strategic business asset. Rather they are often the outdated systems of 20-30 years ago, focused on paying claims (often inaccurately), performing basic accounting functions, and keeping track of member and provider numbers.
Ten years ago the idea of health insurers using technology to monitor and respond to consumer utilization behavior in order to build personalized products on the fly was about as likely as Donald Trump’s chances of winning the Presidency—could happen, but everyone in Hell would be wearing a snowsuit for the occasion. Ten years ago the idea of applying analytics to the Mt. Everest of data that resides even in these Flintstone-era systems to make individualized clinical and network optimization decisions was just beginning. If a venture capitalist said at the time that they were focused on investments in healthcare information technology, her peers expressed either horror or sympathy, depending on their level of emotional IQ.
What a difference a decade and a sweeping health reform law makes. Among the tenets of the PPACA are that insurers much spend no less than 80-85 percent of their premium dollars on actual healthcare services (versus administrative overhead). The vast majority of enterprise systems now in place can barely track this statistic on an aggregate basis, much less on the product-by-product basis required by the new law.
The big-ticket expense in health insurance is the cost of providing care to individuals with chronic illnesses (accounting for between 70 percent and 80 percent of all claims costs). In a world where premium increases are regulated and price-performance will matter, insurance carriers and the provider organizations charged with acting like insurance carriers in the newly formed Accountable Care Organizations encouraged under PPACA must adopt software that enables them to proactively coordinate care and engage the consumer in preventative and wellness behaviors.
Perhaps most shocking to the system of some health insurers, they are going to need to fully integrate their functions—claims, provider network, clinical management, finance, underwriting, marketing—in order to undertake the sophisticated and continuous product development. This will be necessary to survive in a world where the sale is to the consumer in an environment that encourages competition based on price, product personalization, and service, as the health insurance exchanges will offer.
Provider organizations are also being dragged into the information age. As both insurers and the government begin to offer new-fangled bundled payments and pay-for-performance incentives, providers are going to have to account for the cost of their services in a way they have long avoided. Just like manufacturing and financial services industries, providers and hospitals will need systems that enable them to deliver just-in-time service on demand with zero defects and rapid feedback mechanisms.
Hospitals can ill-afford to make costly medical errors when carriers won’t pay for either the errors themselves or for the treatment required to fix them, as is increasingly becoming the case. Today hospitals commit about $20 billion worth of medical errors per year; that is about to come straight out of their bottom line. Hospitals will also need technology to help them
