B u s i n e s s P a P e rThe Paper shuffle:What is it really Costing You? executive summary Despite a relentless rise in premiums well beyond the rate of inflation in the last decade, the return for the money spent on health plans is not resulting in better service or better coverage for members. Health plans are facing unprecedented pressure to deliver new value that is defined in terms of lowering medical costs, decreasing administrative waste, and improving the medical outcomes of the members they serve. However, inefficient, paper-based administrative processes carried over from the last decade threaten the future success of health plans—they can no longer afford to base their profits on premium hikes. This paper highlights an exclusive Pivotal CRM Web event in which Dr. Dennis Schmuland, Global Industry Manager for Health Plans at Microsoft, and David Self, General Manager of Healthcare Solutions with the Pivotal CRM team, explained the real, practical advantages healthcare payer organizations can experience by using CRM technology to streamline and minimize paper-based processes.
The Market Expects More from Future Profit Sources forHealth Plans HealthplansIt’s becoming clearer every day that today’s market So what are the implications for health plans if the marketdemands more value from health plans. Why? Because demands more value from them? They can no longerstakeholders realize that, despite a relentless rise in afford to base their profits on premium hikes. Futurepremiums well beyond the rate of inflation in the last profits must come from the following:decade, the return for the money spent on health plans • Improving productivityis not resulting in better service or better coverage.Consider these facts: • Enhancing decision making• The United States still spends more on healthcare— • Offering superior customer service in both real dollars and as a percentage of GDP— • Increasing retention rates than any other nation in the world.1 • Ensuring healthier members• Healthcare costs now constitute 14.9% GDP; on track • Establishing better medical outcomes to hit 18.4% by 2013.2• While the United States ranks number one in the world This, we believe, is the emerging new economy for healthcare spending ($1.7 trillion), it ranks only 48th for healthcare. The shift in market demand toward new in life expectancy.3 value means that the inefficient paper-based processes carried over from the last decade now present a signifi-Employers and consumers who purchase healthcare ben- cant threat to the future success of health plans facedefits in the United States see a widening gap between the with adopting consumer-focused business models.high costs of healthcare benefits and the results they’regetting in return for their healthcare dollar investments. Amazingly, 90% of the 30 billion healthcare transactions that take place each year are still conducted by phone,And when it comes to customer service, employers and paper, or fax. Through the last 10 years, moreover,consumers seldom experience the same or better level administrative costs have not dropped significantly. Mostof service—both online and offline—that they’ve come to of these administrative costs arise from manual, inefficientexpect from the travel, retail, and banking industries. paper and phone based processes that have yet to be automated.As a result, health plans in this decade are facingunprecedented pressure to deliver new value that isdefined in terms of lowering medical costs, decreasing The Threats Posed byadministrative waste, and improving the medical out-comes of the members they serve. Administrative InefficiencyAdministrative process automation is now assumed; it is Inefficient administrative processes that have been carrieda sunk cost of doing business that is no longer optional— over from the last decade threaten the future successit is a requirement for health plans that hope to compete of health plans. These manually intensive tasks rely onsuccessfully in meeting the demands of the market. paper-based communication. As a result, they: • Cost Too Much – administrative inefficiencies are laborHealth plans that figure out how to automate their busi- intense and introduce needless delays; these costsness processes and focus on customer needs, rather effectively consume the capital and labor resources thatthan pure cost avoidance, will gain market share and health plans need to meet new business demands andincrease profits. However, these new profits will not come deliver new products to market.from premium increases; they will come from improvedcustomer acquisition, increased retention rates, and the • impede Growth – administrative inefficiencies robability to provide new, consumer-friendly products to the health plans of the capital they need to deliver newmarket more quickly than the competition. value efficiently: better medical outcomes and healthier members at lower costs.By reducing administrative drag, health plans that become • increase service Failures – administrativemore competitive will also free more capital to support inefficiencies increase service failures becauseinitiatives designed to improve member health and paper-based processes are far more prone to error. Inmedical outcomes, closing the gap between high costs contrast, automated processes can be programmedof U.S. healthcare benefits and the return on healthcare to catch and correct errors, which prevents delays andpremiums in terms of life expectancy, customer service, mistakes.and healthier members.1. For details see, “Building a Better Health Care System: Specifications for Reform”. The National Coalition on Health Care, 2004. http://www.nchc.org/materials/studies/reform.pdf2. For details see, “Now Can We Talk About Health Care?” Clinton, Hillary Rodham, New York Times, April 18, 2004.3. For details see, “Now Can We Talk About Health Care?” Clinton, Hillary Rodham, New York Times, April 18, 2004. Pivotal CRM | Business Paper 1
Is Going Paperless Realistic? You can quantify value by first measuring, and then reducing the number of times employees have to touchIs it realistic to believe that paper can be completely or handle paper for every transaction, whether it’s a neweliminated from all of the business processes taking application or an enrollment form. In reducing touches,place in healthcare organizations? Of course not. you reduce costs significantly by becoming more efficient and effective. Health plans that learn how to improveOne reason why paper can’t be eliminated quite yet is their internal processes and productivity by streamliningthe requirement for a physical signature on business paper-based transactions will outperform competitors,documents. To many legal departments, and in many gain market share by reducing churn, and retain morestates, a “wet” signature is required to authorize a employees and members.contractual agreement. Federal legislation, however,does allow electronic signatures in many transactions,so it is increasingly possible that a company’s policy— Unnecessary Paper Touchesrather than state or federal law—can be the barrierto eliminating requirements for a physical signature. Cause Delays In a very simple example, let’s assume that fiveWe’re a long way away from eliminating paper, but there stakeholders are usually involved every time a neware some compelling ways to address this issue today in member joins and is enrolled in a health plan. The broker,order to become more efficient and effective in the future. sales executive, sales assistant, and underwriter move theIntuitively, most of us would agree that excessive volumes group or individual along the enrollment process—fromof paper related to any business process creates suspect to prospect to member. The process is presentedproblems. Paper is expensive. Paper takes up a lot of visually in the diagram below.space. Paper can get lost. And most importantly for health The prospective member fills out an application and givesplans, paper makes automating business processes more it to the broker, who passes it on to the sales executive,difficult and inefficient because it must be transferred who hands it off to the sales administrator. Three touchesphysically—from the member, to the broker, to the sales into the transaction, nobody has yet done anything torep, to the underwriter, and so on. actually enroll the prospective member.The obvious question to the idea of slowly eliminating As part of the enrollment process, it’s likely that thepaper from a paper-intensive process is this: if we know sales administrator will enter information manually aboutthat paper can’t be eliminated completely, how can the prospective member, which is then passed along towe quantify the value of incrementally decreasing our the underwriter.dependency on it?There is an answer. 1 BROKER MEMBER 2 RECEIVED RECEIVED RECEIVED UNDERWRITER 4 3 SALES SALES ADMINDiagram 1: Information Flow From Member to Underwriter Pivotal CRM | Business Paper 2
The underwriter’s role is to evaluate the prospective As a result, the underwriter has to set the applicationmember’s information, classify it according to a rating aside until the information can be obtained, which meanssystem, and then determine how the prospective member that no business has been transacted.qualifies for a given benefit plan relative to any potentialrisk involved and at what price. It is at this stage of the Now the process gets bogged down. The underwriterprocess where time-consuming and costly complications passes the form back to the sales administrator, whoare likely to begin—and escalate. sends it back to the broker, who actively pursues the prospect to get the missing information. Once theIn this example, we introduce a common problem: the information is obtained, the broker takes the form backprospect forgot to enter required information on the form, to the sales administrator, who passes it back to thesomething as small as the date of birth of a dependent. underwriter. The process takes at least ten touches, which is illustrated in the following diagram. 1 7 8 BROKER MEMBER RECEIVED 2 RECEIVED 9 6 RECEIVED RECEIVED 10 5 4 3 UNDERWRITER SALES SALES ADMINDiagram 2: Information Flow Back to MemberLet’s expand this example further and say that this Future profits or increases in operating margins cannotapplication is for a small group, with ten employees be driven simply by increasing premiums anymore. Theand a couple of dependents per employee for a total market will not tolerate it. Health plans must find betterof about 30 individual applicants. Here, with a single ways of conducting business every day.application, with one missing piece of information, thesales administrator cannot complete the transactionand must touch the application at least twice without Quantifying Employee Costsprocessing it. During this delay, which could take days, To better understand the implications of being a morethe prospective member is free to consider applying efficient and effective healthcare payer, it’s good to startfor competing health plans. by quantifying employee costs.This is an inefficient—and costly—way to conduct Consider the cost of an administrative employee; abusiness. In the preceding example only one piece fully-burdened, full-time employee (FTE). How much doesof information is missing. The problem can grow it cost your company to have an employee at a deskexponentially if other mistakes occur during the touching paper? This includes the employee’s salary,application process. overhead, and benefits. Pivotal CRM | Business Paper 3
Once you calculate the cost of your administrativeemployees, calculate the cost of your sales employees, Quantifying Transaction Costsand then your underwriting employees. These numbers The next step in quantifying the value of streamlining aprovide a framework for quantifying the total employee paper-intensive process begins by measuring transactioncost of touching paper. costs. The following diagram highlights some benchmark numbers to use when considering these costs. While there are many “flavors” of determining transaction costs throughout the healthcare industry, the figures here offer a conservative starting point. = $30 = $10 = $0.25Diagram 3: Transaction CostsFor our example, a paper transaction costs approximately process inside the average healthcare organization.$30, a telephone costs approximately $10, and an In making these calculations, consider how they mightelectronic transaction (for example, entering someones be applied to improve the processes in your organization.information directly to the underwriting division onan electronic form) is 25 cents. These are dramatic The following basic equation can be used to calculatedifferences that can have a huge impact on both your transaction costs:costs and your profits. To read more about the costs (Touches x Time) x Cost = Full Time employee Valueassociated with web-based transactions visit: www.healthcare-informatics.com/issues/2000/06_00/dejesus. For the purpose of the following discussion, assumehtm that stakeholders along the application and enrollment process touch a small group application approximatelyCalculating the Total Cost of eight times in total. In the preceding example, remember that it took 10 touches just to get one piece of missingEnrolling New Members information, so eight touches is conservative. Let’s also assume that one touch takes approximately 15 minutes.It’s worthwhile to see if someone in your organization has Using these numbers, if an administrative employeealready quantified the actual cost of a transaction in your processes 50 applications per month, the costs of acompany today using similar numbers. It’s likely that the fully burdened employee will be $50,000—a reasonableresults would be close to the figures used above. What estimate. The calculation looks like this:would this potentially mean for your organization? (8 touches x 15 minutes) x 50 applications = 6,000Once you determine how often an employee touches minutes = 100 hrs = 12.5 daysan application, you then need to find out how manyapplications that person processes each month. An average employee works approximately 22 days perWhile it’s relatively easy to determine the number of month, or 250 work days per year.applications processed per month, it’s more difficult tocalculate exactly how many touches are required for each In this example, the administrative employee costs $200transaction. The overriding fact when dealing with paper, per day. The calculation for full time employee value lookshowever, is that you’re often going to end up with missing like this:information, or illegible information at some point. Time x Cost = (12.5 days x $200) = $2,500In the following calculations, we’ll build on earlierexamples to determine the total costs of a manual paper For the average administrative employee to process 50 applications, the cost is $2,500. Pivotal CRM | Business Paper 4
Reducing Costs by Reducing of your enrollment divisions. Think about the implications of reducing the number of times all of these peopleTouches have to touch paper applications—enrollment forms, applications, statements—just to quote and enrollThe preceding calculations provide a general idea of new members.enrollment costs for the average healthcare organization.In the equations we used, what would the implications The savings add up quickly. Suddenly, it is possiblebe if you could reduce the number of times that your to quantify the value of investing in smart technology.administrative employees touch applications by half— However, let’s keep in mind that investing in technology isfrom eight times to four times? Consider the equations not only justified by cost savings but also by productivityagain: gains. Things like time savings, the ability to redeploy employees to more value-added duties and increased(4 touches x 15 minutes) x 50 applications = 3,000 customer satisfaction are important when consideringminutes = 50 hours = 6.25 days your return on investment.Time x Cost = (6.25 days x $200) = $1,250.00For every 50 applications processed, the time saved Building Value by Buildingwould be 6.25 days and the costs saved would be Relationships$1,250.00. Remember, this reflects the savings for justone administrative employee. Consider the same type of The following diagram illustrates exactly what occurssavings with sales executives and underwriters across all in healthcare payer organizations when an individual becomes a prospective member. The individual is usually identified by a broker or through a marketing campaign. SUSPECT PROSPECT PROPOSAL ENROLL R E N E WA L MEMBER M AT E R I A L S E D U C AT I O N & I N F O R M AT I O N ACCESS BENEFITSDiagram 4: The Relationship Development ProcessThe broker solicits the prospective business and then As the prospect goes through the enrollment process,approaches a handful of companies for proposals to he or she eventually becomes a member who is entitledevaluate their healthcare coverage. At this point the to receive member materials, such as summary planperson becomes a prospect. descriptions, benefits summaries, benefits booklets, membership cards, and so on.The sales executive then becomes involved with thebroker and they begin gathering information from the new Once members begin to use their health coverage—prospect. The information comes into the company and a they visit a physician, they go to the dentist, they visitproposal is generated. the emergency room—they are officially accessing their health benefits. Once members access benefits, theyIf the rates are favorable and the coverage is what have claims. They have a reason to call your customerthe prospect is looking for, the prospect begins the service representatives or your nursing staff. At this pointenrollment process. your organization pushes information out to members and pulls information in from their interactions with you. This evolving relationship is characterized by education and information. Pivotal CRM | Business Paper 5
When your relationship with the new group reaches the11th month, a renewal usually takes place. Conclusion Eventually, all healthcare organizations will have toUnfortunately, this is the time when healthcare compete on the basis of improved efficiency and betterorganizations go back to their members and say “we customer service. The current system is simply beingvalue your business so much that we’re going to raise crushed under its own weight. Those that move early willyour rates by 25%!” Sounds facetious. However, this have the advantage of improved outcomes, increasedtends to be the reality in today’s market. market share, growing membership, and an increasing bottom line. When you streamline a paper intensiveIf you haven’t built value during the time an individual process, you receive all of these benefits, but you alsohas progressed from being a suspect to a prospect to receive something else: improved employee morale.a member, by the time the renewal comes up there is a When people are more efficient and effective, doing lessmuch higher probability of losing the member. This means “busy work,” it has a powerful impact on how they feellosing the opportunity to recoup the cost of sales, losing about their jobs.market share, and allowing your competitors to get intoyour book of business. Specifically, this offers the following benefits to healthcare organizations:Improving Customer Service to • Paper and manual touches are reduced, which streamlines paper-intensive processes.Increase Loyalty • Membership increases—members receive informationWhen a health plan raises rates continuously without more quickly and more accurately, with better outcomesimproving service, the first members to leave are typically than your competitors.those who are healthier risks. They have more options. • Member data across sales, underwriting, enrollment,So during the first 11 months of this cycle, it is critical to and renewals is unified. Critical areas such as newbuild value. And smart technology tailored for healthcare business enrollments or renewals become more visible.payers allows you to build this kind of value. The best wayto do this is by gathering information early and putting • Members get better service—it’s faster and moreit into a single database where everyone can access it efficient, which is a competitive advantage. Happyto get a complete picture of the individual’s needs and members are more likely to renew their health plans.preferences. For example, putting renewal alerts into • Your employees are happier and are working smarter.place well before the 11th month provide employees with They’re able to think more about critical components ofvisibility, while building your competitive edge before their job.renewal season begins. • Time and administrative dollars are saved—the timeWhen the prospect becomes a member, he or she is and costs saved are even higher for underwriters.treated uniquely—no matter what the touch point with your Putting underwriters in control of electronic informationcompany is. Suddenly you have a very complete picture, enables them to spend time more effectively, whicha 360-degree view of your members. The better the service improves underwriting outcomes.is, the less likely it is that someone will leave, even though • Brokers are more loyal because they are given therates may have to increase from time to time. right tools for success. They are able to process more business and reduce costs inside the brokerage asPrice sensitivity in the marketplace is something we all well.have to live with, but poor customer service is likely todrive people away. Great customer service builds loyalty • Management has powerful reporting tools that improveand increases the likelihood that members will stay decision making.with your organization when rates increase. This is also A paperless system allows you to capture information inimportant to your broker distribution channel because they a single database, extract that information in standardwant to build their book of business with reliable carriers. formats, and present it in management reports that make everyone’s lives easier. Critical areas such as newYou can create an outstanding customer experience by business enrollment, renewals, who you’re losing, andgiving everyone inside your company the ability to know why you’re losing them become more visible to yourexactly what individual members prefer and expect from executives and management team. Strong managementyour organization. reports ultimately improve decision making. Pivotal CRM | Business Paper 6