Harvard Pilgrim Health Care had been trying to get it together, literally, ever since the merger of two very different HMOs more than four years ago. Its plan wasn't working.
Bogged down by an unmanageable melange of customized contracts and aggravated by a computer patchwork that couldn't handle the burden, the health plan skidded from a $57 million net profit in 1994 to a $54 million net loss in 1998. By mid-1999 it already had lost $50 million.
But rather than just hack expenses right and left, the Brookline, Mass.-based managed-care organization decided this month to plow $700 million into an all-encompassing overhaul of information systems operations and strategic technology projects-engineered entirely by an outside firm.
The 10-year contract with Dallas-based Perot Systems Corp., announced earlier this month, includes incentives for both partners to shorten claims turnaround and increase the accuracy of the claims process (Oct. 11, p. 28).
Harvard Pilgrim had taken periodic beatings in the local press from enrollees and physicians frustrated with delayed or mishandled service.
In August, for example, 130 physicians at Massachusetts General Hospital in Boston quit the HMO's Medicare risk plan, saying they frequently had inaccurate enrollment lists and were not getting data on the hospitalization, drug and test costs of their patients.
The hiring of Perot Systems is part of a corporate turnaround plan focused on the use of information technology to simplify and improve service to enrollees and providers.
It also ostensibly signals the start of a trend toward outsourcing all information services to specialized technology contractors. Harvard Pilgrim joins Detroit Medical Center, which outsourced its information systems operations and retooling efforts in August to a Detroit-area technology firm in a 10-year, $1 billion deal. MODERN HEALTHCARE will feature the DMC's information systems contract in an upcoming issue.
It's a belated beginning for the trend. Industry observers had long predicted outsourcing would catch on as a strategy for productively using information in healthcare (July 24, 1995, p. 60).
Hospitals traditionally outsourced basic functions such as payroll, with the goals of reducing the operating expenses of automation. But information exchange became a strategic necessity in recent years as hospitals and health plans consolidated into elaborate networks.
With consolidation came recognition that healthcare organizations could be hard-pressed to handle the resulting increase in computer complexity and also keep up with the skills needed in the fast-changing computer field.
Though expense reduction has to be in Harvard Pilgrim's plans-its loss from operations in 1998 was $94 million-the arrangement with Perot isn't concentrated on saving money, said Louis Gutierrez, Harvard Pilgrim's recently hired chief information officer.
"This isn't primarily a cost-reduction move," he said. "It's primarily a performance-enhancement move."
Though the switch to outside management is expected to reduce operating information systems costs by 12.5%, the savings likely will be eaten up by new computer development initiatives, Gutierrez said.
The organization has an assemblage of disparate computer hardware and software dating from before Harvard Community Health Plan merged with then-competitor Pilgrim Health Care in January 1995.
But computer capability was only half the problem. Harvard Pilgrim tailored contracts for individual providers, which multiplied the tracking and processing burden exponentially. Dozens of contract forms were further modified into "as many varieties and tweaks as we had clients," Gutierrez said.
Also, enrollees and providers had multiple identification numbers for claims.
Harvard Pilgrim had made progress integrating and standardizing its claims systems on a software package called Amisys, marketed by McKesson HBOC's Atlanta-based information systems division. But the system was taxed by the complicated contracts and account duplication it had to manage, Gutierrez said.
"While the integration was proceeding, it's a bit of a tar pit-the whole business needs to concentrate on simplifying and straightening out," he said. "It's not enough to (convert) disparate systems into an integrated environment."
The contract terms with Perot set annual performance improvement benchmarks, particularly in claims processing, Gutierrez said. The goals cover not only information technology issues but organizational concerns such as accelerating payment cycles, increasing the percentage of providers that submit claims electronically and redesigning systems to eliminate multiple identification numbers.
The HMO also is renegotiating and simplifying all its provider contracts, using guidelines to ensure that the contracts can be automated. As a trade-off, providers will get contractual guarantees that Harvard Pilgrim will pay claims within 30 days or be penalized.