How Senior Executives Can Use Healthcare Performance Management as a Business Strategy

Executive Summary

In this report, we examine how Healthcare Performance Management (HPM), combined with self-insurance, can empower organizations not only to better manage their governance, risk and compliance exposures, but also to deliver bottom-line business value to a company. By applying the right people, processes and technology to those three focus areas, HPM can empower companies to execute a powerful business strategy that can reduce healthcare costs while also improving employees’ health outcomes.

The first step rests with how companies choose to deliver health benefits to their employees. There are two ways that organizations can provide coverage: through fully insured plans, in which they purchase coverage from an insurance company, or through self-insured plans, in which they directly cover employees’ healthcare expenses.

Self-insurance recently has become the option of choice for a majority of the workforce. In 2008, the nonprofit Employee Benefit Research Institute (EBRI) found that 55 percent of workers with health insurance were covered by a self-insured plan. The decision to self-insure has been embraced enthusiastically by large corporations — 89 percent of workers employed in firms with 5,000 or more employees were in self-insured plans in 2008.

By self-insuring, employers can control the costs of providing health benefits to their employees because it allows them to:

• Obtain more specific information about their actual healthcare expenditures.
• Control costs, because instead of paying health insurance premiums that typically rise 9 to 10 percent per year, they can pay for routine expenses such as doctor visits, procedures and prescription drugs through a self-insured plan, obtaining lower-cost catastrophic or “stop-loss” policies to cover major medical events.
• Enable better “human capital management” by recognizing in advance what types of health events are emerging in their covered population in time to help employees avoid a catastrophic event.

“But the benefits of self-insurance can be realized only if the process is actively managed through the strategy of Healthcare Performance Management (HPM),” says George Pantos, executive director of the HPM Institute and former deputy under secretary at the U.S. Dept. of Commerce.

“Traditionally, health insurance has been treated as a compensation or benefits issue that was almost solely within the purview of the human resources department. HPM represents a shift in that paradigm because it enables a set of processes and procedures that engages key players within the organization,” he explains.

An HPM strategy has profound implications for senior management in the three critical areas of governance, risk and compliance. This manifests itself in the following ways:

• Governance requires the active engagement of business units beyond human resources — strategic planners, financial and operations executives, and the IT group.
• Self-insured firms must manage their own risk, so access to real-time data that is tied to the plan is imperative.
• Although corporations have dedicated resources to compliance activities, an HPM system is automated and therefore can deliver those required reports as an ancillary function. This way, organizations can generate the necessary documentation for auditors, regulators and others without devoting valuable resources to that single function.

“By putting the right people, processes and technology in place around each of those areas, companies can cut costs, reduce risk, improve governance and compliance, achieve strategic insight into potential risks, and improve the health of their employees,” says Stuart Hersch, President and CEO of Cantor LifeMarkets.

This is a view supported by Todd C. Thompson, chief technology officer (CTO) for the Financial Services & Human Capital line of business in Lockheed Martin Corporation.

“There are so many opportunities to improve the quality of healthcare, to manage services proactively, to provide better services for the employees at a more aggressive price,” he says.

But in order to do that, organizations need to develop a sophisticated set of policies that are proactively managed by employers with an interest in reducing costs and improving outcomes.

Thompson said that there needs to be a clear view into the plans – when to engage them, as well as when engaging them would be counterproductive. “We have to develop procedures for actively monitoring the use of healthcare management resources and to establish guidelines [governance] on how frequently we assess the services that are being provided,” he said. “And finally, we have to be prepared to adjust these strategies as we better understand the needs of our constituency. The bottom line is that the more proactively and responsibly these programs are governed and managed, the more effectively they can be targeted and executed to deliver value.”

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