Are Health Plans At A Tipping Point?

By Merit Smith
Vice President
Director, Health Care Practice

A tipping point is reached when a subtle, slow-building process or evolution becomes obvious; there is a sudden awareness that a significant change has occurred. Think about tipping points and you will find them all around: cell phones have tipped land lines; in the airline industry, the Southwest Airlines model is about to tip the hub-and-spoke model; and contracted networks have replaced Yellow Page fee-for-service medicine.

In 2004, Nolan consultants noticed that some of our clients were spending more on inquiry management than on claims management. Soon, through our work with a variety of types of organizations, we saw that what had begun as a curiosity had blossomed into a full-blown trend. Here’s a telling example. About five years ago, one service organization had 2,400 people in their service centers, split evenly between claims work and phone work. Today, the same client has about 450 people on the phones and 95 in claims processing.

How did it happen? Standardized data has helped expand the use of EDI, and improved EDI skills have improved first pass rates to the point where an 85% pass rate is “table stakes” for claims management. OCR continues to improve. More attention to processing logic and rules and second-generation process management technology have reduced the cycle time and labor content for managing pends. Simpler provider contracting has reduced processing complexity and has boosted quality. For many organizations, gains in processing capability and productivity are compounding faster than the growth of transactions.

What dynamics are driving inquiry management? The members of the more complex, confusing products tend to call health plans more frequently and with more involved questions. In many cases, members are now spending their own money and they want to talk before they use their benefits.

Also, providers have intensely redesigned their revenue cycle that sends the health plan claims and phone calls. Providers’ efforts to improve their revenue cycles have increased voice inquiries for eligibility and status checks. And many providers have been slow to move from expensive voice inquiries to lower-cost channels (but they are moving faster than members to the lower-cost channels).

The shift in relative importance between claims and inquiry management has profound implications for health plans. Priorities for the management at plans that have made this transition are different, and the day-to-day operational issues and challenges are distinct. We see the tipping point reflected in human terms—managers selected for advancement in these companies are more likely to have managed an inquiry process than a transaction process. The post-transition plans may spend more to develop staff skills and more on technologies to improve the inquiry interface and customer experience. We believe there may be important differences in cost structures that occur as part of the transition.

I don’t know where your health plan is in relationship to this tipping point, but I suspect that you compete with plans that have made the transition. To be an effective service company, you need to know where you are in this transition and where your competitors stand.