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Hard Times in Healthcare: Business Intelligence Provides Support Accelerating Performance by Calculating Results

Originally published March 3, 2009

Healthcare organizations in the U.S. are suffering through a financial pandemic with a combination of fluctuating markets, rising costs, and less generous payments from insurers putting severe strain on healthcare providers. Hospitals and physicians clinics are squeezed on all sides – by insurance companies and Medicare, by patients wanting quality care but often unable to pay for it, by the high costs of medical equipment, drugs and supplies, and by the sheer bureaucracy needed to file claims, or deal with regulatory issues.

Challenges for Payers & Providers

While the current economic crisis has negatively impacted healthcare providers, these problems have been in the making for several years. Declining admissions, rising costs and lower reimbursements from Medicare/Medicaid and insurers have put many providers into the red. Fully one-third of the nation's 5,000 hospitals are losing money, while another third are just breaking even.

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Figure 1: Percent of Hospitals Re-evaluating Options
Source: AHA Survey, the Economic Crisis: Impact on Hospitals

On the payer side, insurance companies, too, are feeling the pinch of rising health costs and lower employer contributions. As advanced medical procedures and newly developed drugs continue to become available, insurance firms must decide which therapies to cover and for how much. Some statistics to illustrate the situation: The American Hospital Association (AHA) reports that hospitals were, on average, $831.5 million operating in the red in the third quarter of 2008. Moreover, the AHA also reports that 51% of the hospitals saw an increase in the proportion of patients unable to pay for care.1

Efficiency: A Major Concern

For both health providers and payers, the rising costs of drugs, medical equipment and health services have forced hard decisions about what constitutes good care and how much it is worth. New methods of determining what constitutes quality healthcare, such as evidence-based medicine2 and pay for performance, are increasingly pushing healthcare organizations to adopt business intelligence (BI) systems that improve efficiencies and produce the numbers needed to justify their own decisions – both internally and to outsiders. Payers spend much time adjudicating claims and processing appeals. Providers spend time filling out insurance claims, checking patient numbers and diagnostic codes, and then appealing claims that get rejected due to incorrect forms.

All of that paperwork, whether digital or pen-and-pencil, adds up. The administrative overhead at hospitals is significant – about 23% of total operating costs,3 Given that approximately one-third of U.S. hospitals are now operating in the red, with another third at just breakeven, reducing administrative overhead and rooting out inefficiencies elsewhere is clearly critical.

Use of Business Intelligence Process, Technologies and/or Services Improves Performance

General administration and procurement. Healthcare costs now account for nearly 16% of the U.S. gross domestic product. Some of the blame goes to expensive drugs and diagnostics, but another culprit is the high administrative overhead of most hospitals. Operational reporting has proven to provide administrators and business executives with operational decision support and improve business efficiencies.

Reimbursement. As costs for hospital supplies and diagnostic and treatment technologies increase, so does the difficulty of getting reimbursement from insurers and patients. Hospitals are thus under tremendous pressure to weed out waste as well as to comply with ever-increasing amounts of reporting required by insurers. At the same time, insurers are concerned about having to pay for unnecessary treatments or outright fraudulent claims. Claims/billing analysis done by providers and insurers alike helps to reduce costly errors, speed the process of submitting correct invoices and decide on appropriate payment.

Clinical care. The type of treatment a patient receives differs from hospital to hospital and doctor to doctor, even within the scope of accepted professional practices and for identical patients. Identifying treatments with the highest rates of success for specific diseases and categories of patients and creating standards based upon each category is being implemented in an effort to improve patient outcomes. Business intelligence and analytics – sometimes packaged as care management or disease management solutions – are used to create these evidence-based medical recommendations.

Legacy Data Warehouse Projects: Capturing ROI

Large hospitals also want to get value from their data warehouse projects, many of which have been years in the making. Mid-sized and small healthcare organizations, while less likely to have data warehouses due to lack of funds and IT staff, may have focused on data consolidation investments with the idea of identifying trends and having better visibility throughout the organization.


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Typically, information captured within data warehouses, transactional applications such as enterprise resource planning (ERP) or financial tools, physician-oriented data marts and/or operational hospital databases contains various dimensions and variables such as:

  • Claims data

  • Diagnostic data

  • Patient histories

  • Supply inventories

  • Vendor invoices

  • Admissions information

  • Billing data

  • Unstructured content such as patient verbatim, radiology images and scanned documents.

But for many healthcare provider and payer organizations, this mass of data has not been made useful. It has not shed light on process inefficiencies or provided answers on costs, revenue opportunities, successful vs. unsuccessful treatments, and so forth. This information is just data, not intelligence.

Toward Evidence-Based Medicine

As healthcare administrators strive for more effective and efficient operational and clinical processes, they look to business intelligence to identify the factors that affect costs, reimbursements, and patient outcomes. The results become the basis for treatment standards and also determine how, or if, a provider is paid.

For health insurers, evidence-based medicine may be used to specify the treatments that health plans will or will not cover. It can be used to determine what protocols a hospital should use when admitting patients with certain types of conditions. Hospitals that don’t follow those protocols may not get reimbursed as much as hospitals that do follow them. This is known as pay for performance.

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Figure 2: Dashboard Example of Direct Surgical Implant Costs by Physician Provider
Source: ©2009 Hypatia Research, LLC

Medicare/Medicaid and a growing number of private insurers are pushing a pay-for-performance approach to reimbursement to ensure the most cost-effective treatments and patient care standards.

Likewise, hospitals use performance information to identify the success rates of departments, teams and even individual physicians. They can compare surgical implants on a cost vs. success rate, and then set standards dictating when to use a cheaper implant vs. a more expensive one.

Need for Information Transparency and Portability

Business intelligence and information management are part of a wider trend that includes electronic medical records4 and better information sharing between government agencies and healthcare providers. Information management will continue to be a huge issue in 2009 and beyond.

Transparency of information is a related issue that is particularly important to healthcare payers for several reasons. Insurance providers are under pressure to provide more detailed justification for rejecting claims and must make that information available to agents, patients and the healthcare providers. To reduce the cost of answering subscriber inquiries, many insurers are working to make claims and benefits information more easily accessible online, via self-service web portals. Transparency projects also include efforts to implement real-time claims adjudication systems, to consolidate duplicate or disconnected data sets into larger more accurate ones and adopt standard information formats.

Despite the economic fallout of 2008, Hypatia’s assessment is that the basic trend toward transparency will continue. One of the benefits of “transparency” in claims processing is that both subscribers and providers will have a better understanding of the reasons for a claim rejection and be able to make a better judgment as to the value of an appeal – saving time and resources for everyone. After all, the cost of administrative overhead required to adjudicate healthcare claims is significant. According to hospital and insurance executives, as much as 30% of healthcare expenditures went to cover administrative costs5.

Electronic health records (EHRs) have been on hospital IT to-do lists ever since 1996 when HIPAA6 became law and, more recently, when President Bush signed an Executive Order in 2004 mandating the development of a national health information network (NHIN). That is currently in the trial stage, although the Social Security Administration (SSA) is the first to begin using it in December to access medical records held in the MedVirginia health information exchange. The SSA is using the records to confirm medical histories when people seek disability assistance.

The idea behind the NHIN is to have a national IT infrastructure that can be used to share patient health information. The ability to share patient records between healthcare organizations is integral to the portability aspect of HIPAA. The NHIN also aims to provide a central database of information on patient treatments and outcomes for developing standards-based medical care. The national network will connect regional health information exchanges, health plans and federal agencies.

In the meantime, commercial entities are moving forward with the concept of a central health repository. One recent example is the joint venture between Google and Blue Cross Blue Shield of Massachusetts, announced in mid-2008. The intent is to put patient medical records online this year. Google will provide consumers with a free Google Health Account that will allow them to obtain medical records from participating providers, such as CVS/Caremark and BCBS7, and manage those records or make them available to other third parties such as physicians or insurance companies. Each Google Health user will have, in effect, his or her own personal medical repository.

Presumably other BCBS and competing insurance plans will be invited to participate. As networks such as Google’s, the NHIN and regional health information exchanges go into operation, the market for reporting and analysis tools to make use of that information will expand. This will be of great benefit to researchers and physicians looking to identify the most efficient forms of treatment. Conversely, insurance companies may seek to use this same information to deny payment of claims or to raise insurance premiums based on medical histories, treatment plans or personal behaviors such as lack of exercise, obesity or smoking.

Lean Times Call for Low-Cost Approaches

Of course, along with the need to have BI tools in order to reduce costs and improve income is the growing availability of less expensive methods for obtaining BI – namely, software-as-a-service and outsourced services – which will help healthcare organizations to cost justify their BI projects.

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2009 will be a year of many small, low-cost, certain ROI IT projects. But for those healthcare organizations that survive the quagmire of the next year or two, the next step will be to expand those modest-but-useful BI efforts into enterprise-wide implementations, with more complete integration between departments and more dashboards to serve up metrics and KPIs to financial executives, patient care managers, ER nurses and others that can benefit from fast access to key data.

As the ROI from these projects is realized, many organizations may also expand into BI projects that can take advantage of the vast store of clinical data available in health information exchanges and other online medical databases to improve their patient care processes and enable doctors to make more accurate diagnosis more quickly.

For healthcare organizations that are just now looking at a BI investment and haven't yet created a data warehouse, the most attractive projects will be those with lower upfront capital costs and quick returns. That, in turn, is likely to mean SaaS providers or providers with standalone modules and products that don't require a major investment in data warehouse consolidation or systems integration.

For larger companies which already have a data warehouse, enterprise BI suites that cover a range of functional areas, from clinical care to revenue cycle management – are likely to produce the most satisfactory long-term results. However, these implementations will still do best if done in phases, starting with the high-ROI portions.
The larger the BI project, the more critical consulting services become. For project planning, implementation and maintenance, the suite provider often also provides experienced services.

As 2009 gets underway, with both credit and spending remain tight, it's likely we'll see a shakeout in BI software and services. The mergers that have begun – SAP buying Business Objects and IBM acquiring Cognos – will no doubt continue. While that doesn't mean BI customers should postpone important BI-related initiatives, it does mean that a phased, conservatively planned approach is the optimal way to proceed for the near future.

Note: All content excerpted from "Business Intelligence in the Healthcare Industry: Assessment of Technologies, Solutions & Services," ©2009 Hypatia Research, LLC.

End Notes:

  1. Cost cutting measures in hospitals include reducing administrative costs, staff, and services.
  2. Evidence based medicine is a general effort to apply statistics and facts to medical decisions, and base treatment choices on proven evidence of success.
  3. 2008 Journal of Health Management. (Variations in Hospital Administrative Costs, McKay, Leak and Lovett.)
  4. Electronic Medical Records [EMR] also referred to as Electronic Healthcare Records [EHR]
  5. 2007 Study commissioned by PNC Financial Services Group, Inc.
  6. The Health Insurance Portability and Accountability Act (HIPAA) was enacted by the U.S. Congress in 1996. According to the Centers for Medicare and Medicaid Services (CMS) website, Title I of HIPAA protects health insurance coverage for workers and their families when they change or lose their jobs. Title II of HIPAA, known as the Administrative Simplification (AS) provisions, requires the establishment of national standards for electronic healthcare transactions and national identifiers for providers, health insurance plans, and employers. HIPAA calls for portability of electronic records, but it also calls for security and privacy of health data. The standards are meant to improve the efficiency and effectiveness of the nation's healthcare system by encouraging the widespread use of electronic data interchange in the U.S. healthcare system.
  7. Blue Cross/Blue Shield Insurance
  • Leslie AmentLeslie Ament

    Leslie Ament, Senior Vice President and Principal Analyst at Hypatia Research Group is a customer intelligence management thought-leader and industry analyst who focuses on the business value of technology in regards to how organizations capture, manage, analyze and apply actionable customer insight to improve customer management techniques, reduce operating expenses and to accelerate corporate growth. Her research and advisory services include: Customer Analytics & Interaction, Advanced Analytics, Business Intelligence and Big Data Analytics, Social Media Intelligence/Text Analytics, CRM, Digital Marketing Automation, Customer Data Management/Data Quality and Governance, Risk & Compliance.

    Editor's Note: More articles and resources are available in Leslie Ament's BeyeNETWORK Expert Channel on Customer Analytics & Insight. Be sure to visit today!

  • Sue HildrethSue Hildreth
    Sue is Senior Analyst and Research Editor for Hypatia Research, and she has been writing for the computer industry since 1986, starting as new products editor for Cahners Business Computer Systems magazine. Subsequent roles have included executive editor for ebizQ, an online publication covering e-business integration trends; staff editor for Computer Publishing Group's WebServer Online and Server/Workstation Expert magazines; and editor of Software Success, a business newsletter for software executives. Sue's work has appeared in numerous industry publications such as Computerworld, Processor, SearchSecurity.com, SearchCRM.com, SearchSMB.com InformIT.com and Dice.com. Her coverage areas encompass enterprise software trends and technologies with specific emphasis on CRM, mobile solutions, enterprise search, e-commerce and content management. She is co-author of Hypatia's "Benchmarking Social Community Investments & ROI: Best Practices & Vendor GalaxyTM Rankings," "Business Intelligence in the Healthcare Industries" and "What Healthcare Professionals Should Know About ARRA and Electronic Medical Records Selection.

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