Six ways to improve IT Efficiency and Profitability for Healthcare Insurance Companies

If you’re a healthcare insurance company, you’ve probably felt the repercussions of the Affordable Care Act. Since its inception, it has created the largest growth in the number of insured people in four decades—greatly affecting the IT burden within the insurance industry as a whole.

In fact, since the passage of the Affordable Care Act five years ago, about 16.4 million uninsured people have gained health coverage. And, more than 12.3 million additional individuals are enrolled in Medicaid and CHIP as of April 2015, compared to before October 2013.

It’s this growth in the number of insured people, and the associated insurance claims, that continue to challenge IT organizations when managing the IT workload associated with increases in insurance policies and claims.

Here are six ways that will help you improve IT efficiency and profitability:

1. Obliterate Wasteful Steps

When we think of “efficiency” we usually think in terms of speeding up the steps of a process—if each step can go faster, we’re more efficient, right?

Not quite. An even better way to increase efficiency would be to take some steps out of the process completely.

Do you remember “reengineering?” What most people saw done in the name of reengineering was staff cuts, but most people missed the point. The original Harvard Business Review article that coined the term “reengineering”  was published in the July/August 1990 issue: “Reengineering Work: Don’t Automate, Obliterate,” by Michael Hammer.

The article didn’t talk about cutting jobs, per se: it talked about rigorously documenting a process; decomposing it into steps; looking at the cost/benefit of doing each step; and eliminating the steps that didn’t have an adequate  ROI.

2. Consider IT’s Superpower

It’s the job of IT to help the business understand how its processes work—from end to end—before looking at how it can improve them. IT is in a unique position as it’s one of two corporate functions with the remit to trace a process from start to end across departmental lines. This is its superpower: the power to break down arbitrary corporate silos and actually understand what’s happening in the “claim-to-pay” cycle, especially as it’s handed off from one silo to another.

3. Look at the Edges

Look at the “edges” of process for improvement opportunities. An “edge” is anyplace the process starts/stops/restarts/reworks/transitions. Here are three types of “edges” to get you started:

1. Silo handoffs: If department “A” has a “check outgoing quality” step at the end of its process, and department A+1 has a “check incoming quality” step at the beginning of its process, there’s an opportunity to become more efficient.
2. Startup/Shutdown: Most continuous processes work pretty well when things are humming along. But if a process must be stopped (for maintenance, or shift change, or for weekends), starting it without breakage can be tricky. Look for this breakage, because reworking errors can be very expensive.
3. Dirty Data: Most processes work well when data is complete and correct; many fall apart when missing data must be found (By whom? When? How?), or incorrect data must be fixed (often in a much later process step). Look closely at how erroneous or incomplete data is handled, and I bet you’ll find manual, ad-hoc, poorly documented (i.e., wasteful) recovery steps just begging to be cleaned up.

4. Make friends with IA

IT is one of two functions that can see a process in its entirety. The other function is Internal Audit (IA). Here’s a hint for the CIO: make friends with the head of IA and include auditors on project teams. While IA’s official mission is ferreting out fraud (that’s what everyone thinks, anyway), inefficiency and fraud have many of the same symptoms (manual steps, lots of errors, downstream rework, etc.)

Internal Audit is already identifying process steps being done manually—a red flag for Sarbanes-Oxley (SOX) and HIPAA compliance, and an opportunity for efficiency through automation—and will discover data errors and rework that also present opportunities for efficiency through better data. Remember your superpower? You’ll need it here, because data is best fixed at the source, and the source is often many steps earlier than the problem step found by audit.

5. View SOX as a friend

Another CIO tip: SOX is your friend. While everyone complains about the “red tape of SOX,” the vast majority of SOX controls are common sense and help the business run better. Many SOX analyses discover Excel spreadsheets in the midst of critical processes, and every Excel “SOX critical control” is an opportunity to remediate a SOX issue at the same time a relatively expensive human being (or maybe two human beings, because there’s often someone else maintaining the poorly documented and complex Excel spreadsheet) can be replaced by automation. And how many chances does the CIO get to bring a smile to the CFO’s face—and perhaps get additional funding for a “SOX remediation” project?

6. Consider Company Efficiency versus IT Efficiency

CIOs are under constant pressure to cut the IT budget, while still delivering everything everyone wants, of course. When faced with that pressure it’s easy to forget the concept of “financial leverage.”

What I mean by financial leverage is this: the IT budget is a very small percentage of total firm expenses, but can have a disproportionately large impact on overall firm efficiency. Think of a seesaw with the fulcrum set very far to one side—that’s the size of IT spend versus the firm as a whole—a small movement in IT produces a much larger movement in the company: that’s leverage.

Here’s an example:

• Most IT budgets are set at 1% to 4% of sales.
  Assuming a $2B company with IT at 2.5% of sales, the IT budget is $50M.
• Imagine cutting the IT budget by 10%—a very deep cut, indeed—and the “hero” CIO has just dropped $5M to the bottom line. Well done!
• What if the CIO could make the whole $2B firm just one percent more efficient instead of focusing internally? That’s a $20M impact, or 4 times the benefit.
• What if adding 10% to the IT budget ($5M) could improve company efficiency by another one percent? That is another $20M contribution, or a three-month payback.