GUEST COLUMN

Rapid industry change demands best-of-breed

By Kent J. Sacia
Consulting Actuary
Milliman & Robertson
Seattle

Provider reimbursement continues to shift from a fee-for-service structure to a risk-based structure. Providers now commonly accept primary care, specialty, and global capitation in addition to per-diem and case-rate reimbursements.

The future likely holds outcome- and performance-based reimbursement formulas for many health care providers. These risk-based reimbursement systems necessarily change provider business management needs, causing providers to perform new administrative activities.

Although the type of risk taken determines what new capabilities are needed, most providers assuming risk need to do the following to be successful:

- track operational performance measurements;

- administer capitation and other alternative forms of payment while continuing to administer fee-for-service payments;

- administer incentive/risk pools;

- administer stop loss.

To successfully manage this new risk, providers must gain more control over the management, approval, and payment for health care services. Because these functions are traditionally under the purview of the health plan, most provider organizations are not prepared to assume these responsibilities.

Furthermore, because these functions rely heavily on advanced information systems, provider organizations must make an investment in their future by locating and implementing appropriate technology. When developing an effective system strategy for the new requirements of the health care industry, it is first important to understand that there are no silver bullet vendor solutions.

Health care delivery and risk models are evolving so quickly that individual software developers are unable to keep up. Typically, it takes a vendor two years to fully develop a large-scale application. Assuming the vendor fully understood the leading-edge requirements of the industry as it undertook the development, it probably did not predict the evolution of the requirements during those two years.

Successful software vendors, therefore, are typically niche players that support only a limited range of functionality. Successful provider companies employ a best-of-breed model in their system strategy. This model targets the purchase and implementation of the best products for each distinct functional requirement.

For example, a mid-sized integrated delivery system with a mature risk model may maintain best-of-breed systems for:

- practice management;

- medical management;

- claims processing and capitation;

- credentialing;

- data analysis and reporting.

Because rapid industry change requires leading-edge business and technology knowledge, most provider organizations are not well-equipped to build their own core system applications. The provider should, therefore, buy core system elements from best-of-breed vendors whenever feasible.

The provider may then build surrounding applications where its unique needs are not fully met by software vendors and to complete required interactivity. A typical application that is built internally is risk pool management. Many organizations develop unique methods of sharing risk. These organizations often build interfaces from utilization and membership systems into an internally built risk-tracking and allocation system.

The ultimate value associated with purchasing best-of-breed systems is realized over the life of the organization. As the industry business models change, these best-of-breed niche vendors are better able to enhance their products to meet the changing requirements.

A prime example of this ability is shown in vendors that offer medical management software distinctly from claims administration systems. These vendors have quickly added remote case management capabilities and have successfully integrated clinical guidelines and pathways.

Once an organization employs the best-of-breed systems model, a key issue becomes the integration of data across these various systems. Vendor systems do not typically integrate easily with other systems. The most common interface mechanism is through batch data extraction and loading.

Data warehousing technology has emerged as the most effective system and data integration tool. The data warehouse captures and stores critical information from multiple system sources.

Data warehouses also serve as the hub for information moving from one system to another or from one organization to another. Additionally, the presence of the data warehouse allows the organization to more quickly add and integrate new systems and functionality.