Improving the Healthcare Service Supply Chain

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Over sixty percent of health care plan contracts are signed in the fourth quarter of every year. Your company uses business process management, Lean, ISO, and is Six Sigma. You are focused on delivering value for your customers. You have your suppliers aligned but are you walking-the-talk when it comes to picking an employee benefits company?

The same discipline you use for your own business can be used to assess Employee-Benefits Insurance Companies. This article outlines steps to make the right buying decision for your employees. Selecting an insurer with capability to consistently deliver service will:

• Lower your administrative costs
• Prevent employee dissatisfaction,
• Improve productivity.

Health Care Service Value Chain

As with all service delivery – customers and consumers receive service and participate in service delivery. They contribute to the service value chain – and they receive the service (Fig. 1 Value chain). In this model, your company is the employer-customer of the healthcare insurance company, and your employees are the consumers.

Your Human Resources benefit staff knows that administrative quality is important. Inefficient insurance companies shift hidden administrative costs to you. The primary reason you purchase employee benefits is to retain the best talent. Plans that aren’t well run impact work place productivity because your employees will be focused on claims, appeals, and calls.

For the past few years, quality and process professionals have applied Lean, Six-Sigma and Baldrige quality methodologies to some parts of the health care industry. There are ways to discover which insurers are improving quality, and which are not – even if they say they are. The last section of this article has practical suggestions.

The insurer contracts with medical service professionals to deliver health care. The web of contracts with all the entities that “provide” health care is a Provider Network. The insurance company channels payment for claims. Therefore, the value an insurer adds is actually administrative. Delivery of service depends on effective system processes and business processes. Additionally, the use of data and transaction quality is important within the walls of the insurance company.

How can employers and consumers leverage competition to lower cost and improve quality?

Typically, costs and inefficiencies are linked to high amounts of unnecessary back-office re-work. According to the Cato Institute, 40% (or $96-120 billion) of total healthcare spending goes to administrative cost. If unnecessary work can be reduced on the administrative side, quality will go up and the cost of health insurance plans will go down. Shifting business to higher quality, effective insurers will pressure the others to improve resulting in improvement of the overall healthcare service value chain.

What are an employer’s rights and role in service delivery participation?

As an employer, you buy health care insurance as a benefit for employees. Your relationship with a healthcare insurer is like any vendor under contract. Standard contract documentation specifies how services are defined, measured, and how execution is verified. The agreement will typically clarify pricing assumptions tied to specific services. As purchasers, you have a right to expect fair, predictable service quality equal to what was promised when you bought the health plan. As participants in service delivery, you must keep the commitments necessary for your employees to receive healthcare.

You should expect that the insurer would capture data, segment you as a good customer compared to customers that cost more to administer, and reward you accordingly. An element of service is pricing based on the quality of the employer’s input to the process.

  • Input includes sending electronic payroll data that is accurate and timely.
  • Input includes paying an insurer’s invoice-as-billed in a timely way.

What actions can employers take to prevent problems?

You may question insurers before a contract is signed. These questions are included in a Request for Proposal (RFP) given to the insurance broker. Red flags will pop up in RFP answers to highlight where problems may occur. Reassuring or alarming information is uncovered by asking WHAT is the insurer’s policy, and HOW will the insurer handle key service scenarios. Red flags include non-standard processes, non-segmented data (i.e. averages are used), and arbitrary rules that are not consistently or fairly applied. Another red flag is manual coping activities. These occur when systems aren’t programmed to handle certain categories of data or recent regulatory requirements. Human intervention is needed to deal with the event. Typically, an insurer writes, “Manual process in place.” These red flags are a sign that the insurer has not systematically and efficiently applied BPM to its operations.

An insurer’s externally published results may also indicate underlying problems that impact service delivery. Examples will include any reported measure that swings wildly up and down from quarter-to-quarter – highly variable sales volumes, or internal employee turnover and layoffs. Other examples include external measures that are worse than industry benchmarks – one key indicator is the level of employer customer and consumer retention.

Below are a few examples of RFP questions and the purpose:

Questions Process principles and outcomes.
Does your company maintain standard contracts?How do you enforce internal standardization? Transparency. Reduction of complexity.Lower cost. Red flag – they do not list providers, employers, and other supporting suppliers.
What are the unique employer losses (run-off) for the past three years? How are non-retention measures being used to do business? Retention is a key quality indicator. Look for whether an improvement process is being used.Ref flag – averages are quoted, consumer/member numbers are quoted rather than employer numbers.
What are your processes for assuring subscribers’ and dependents will receive care – for common situations such as step children or children covered by a non-custodial parent, students in other states, domestic partners etc.? Systemic approaches are preferable. Manual processes are vulnerable to error.Manual processes lack fairness due to inconsistent delivery.
What is your external audit process? How can Employers verify that service is being delivered? Transparency. Verification and feedback loop in value chain. Red flag -- Look for weak consistency and fairness.
How does your company differentiate between customers based on the complexity of the product purchased? Segmentation of data. Pricing models are aligned with service delivered. Control of internal processes.Reduction of complexity.
How does your company differentiate between employer customers based on customer’s actions to comply with your administrative rules (e.g. employee data submission, and invoice payment practice)? Segmentation of data. Pricing models are aligned with service delivered. Customers are seen as supply chain partners.
How does your company resolve issues with Employer groups? How does your company resolve issues with consumers? Transparency. Retention. A documented process assures issue resolution and service failure recovery. Red flag – issue resolution process exists for consumer but not for the employer.
How do you improve processes or business practices within your company? Quality is continuously improved. Internal process is healthy.
How do you improve processes or business practice between the company and your customers? Customer retention. Insurer’s practices align with your quality-focus.External process is healthy.

The process discipline embraced by BPM and related technologies can be used to assess and select an Employee-Benefits Insurance company. Employers can help improve the overall Healthcare service supply chain by only selecting insurers that demonstrate their commitment to lowering the cost and improving the quality of administrative processing. Following the guidelines in this article will help you to select a company who is committed to raising the quality of healthcare while lowering its costs.

Ann L. Lovejoy,, consults on strategic business process design and service supply chain integration. She is a board member of the Louisville Women in Technology International; a member of ASQ and PMI; a Malcolm Baldrige Quality Award Examiner; and an MBA.


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