The Balanced Budget Act of 1997. Prospective payment for ambulatory and long-term care. Continued growth of fixed-rate payment to providers.
These pressures and others are forcing healthcare executives to re-evaluate the operational costs structured into their healthcare delivery environments and find ways to do things better, faster and cheaper.
But the decision to re-engineer business processes requires concurrent implementation of automation support for best results. Because of the expense and historical lack of return on investment, healthcare executives traditionally have been reluctant to undertake such projects.
Frequently they were stuck with information technology "solutions" that bound their organizations to the system vendor for long periods of time, with little ability to achieve the business flexibility required by the changing healthcare market.
The Internet and associated technology will change all of that.
In the search for effective and efficient connections among healthcare stakeholders, the Internet has provided the enabling medium. Care delivery organizations must take what's been provided and adopt a strategy for integrating Internet capabilities within their business operations and among their covered populations.
Within the business environment, Internet-related products and services can reduce operational and transaction costs. In the healthcare market, the breakthrough technology extends the organization's ability to manage healthcare delivery to its covered populations at lower cost and with higher quality and improved outcomes.
For now, healthcare organizations should focus on tying their brand names to Internet initiatives and launching "e-business" projects -- such as links to payers and supply-chain management entities -- to cut costs of operations and transactions. These selections are more stable and proven than others at this point.
Long-term vision and strategy should focus on using the Internet for medical management, from case management of individuals to disease management involving many people with the same condition and similar potential for improvement.
The technologies that support Internet initiatives are maturing and becoming stable. The Internet has created an environment that rejects proprietary solutions like those that bedeviled process-improvement projects in the past. The new environment embraces open architecture and standards.
So the risks of not pursuing an aggressive Internet strategy are greater than the risks of plunging ahead. But healthcare organizations must align their Internet strategies with their business strategies to mitigate risk.
E-commerce. GartnerGroup concludes that converting electronic claims transactions to the Internet from the currently prevalent private networks will reduce transaction costs 50% to 75% -- a significant savings, especially as claims volume increases.
Businesses called claims clearinghouses act as intermediaries, editing the electronic claims of providers according to the widely differing formats of insurers and other payers and sending the "cleaned" claims to their destination for payment. The process works in reverse for transactions from payers back to providers.
The cost reduction will come in stages. Though transmission expense can be lowered by using the Internet instead of private lines, claims clearinghouses will not lose their intermediary role in the near future because of their value in transforming data and providing filters for adjudication by payers.
But as transaction standards emerge from HHS in the form of protocols collectively known as X.12N, the need for data transformation goes away -- and an advanced Internet protocol known as XML, or extensible markup language, will become the logical transport.
Eventually providers will be able to screen their own claims using adjudication details sent through the Internet to healthcare information systems. As these Internet-based technologies evolve, clearinghouses will be consolidated and their roles subsumed by portal companies such as Healtheon/WebMD and CareInsite.
Healthcare executives should begin evaluating vendors that can deliver Internet-based claims services. The vendors should be able to reduce transaction costs in the near future while still providing the necessary data editing and adjudication functions required today.
Payer transaction costs. Manual processes for determining a patient's eligibility for insured services and getting referrals authorized can cost as little as $10 and as much as $85 per transaction, including labor and materials. Establishing Internet links with payers for these functions can reduce the cost to a few dollars per transaction while significantly shortening the time involved. The resulting improved satisfaction of both consumers and physicians can be turned into tangible brand loyalty.
Several vendors are providing payer links, but the services are first-generation products that are still evolving and vary in the number of payers included. So it's not a given that a provider's main payers are among the portfolio of linkages supplied by a vendor. If not, healthcare executives should evaluate a vendor's track record of establishing successful payer connections.
In addition, only vendors with significant capital resources should be considered for business partnerships. Those resources will be needed to survive a highly competitive and dynamic market during the next three to five years. Some of these vendors are publicly held and have the significant market capitalization that will reduce risk.
Supply-chain costs. Labor and materials costs of $25 per transaction or more can be dramatically reduced to less than $1 through Internet-based solutions that result in a paperless environment for supply-chain management.
These costs will be further reduced as the back-office processing systems for general ledger, accounts payable, materials management and other activities are able to accept Internet transactions from suppliers. The result will be the kind of automated processing that supports expense management in near real-time.
And suppliers will have the ability to coordinate online catalogs from multiple vendors, allowing healthcare organizations to more effectively shop for the lowest price of noncontracted items. As has happened in other industries, the Internet will drive down costs by improving business-to-business and business-to-consumer processes and by enhancing competition.
Medical management costs. Eventually the Internet's biggest impact will be its ability to manage medical costs across the continuum of healthcare. Today it is difficult if not impossible to determine, for example, whether discharged patients are complying with self-care guidelines. High-risk populations such as diabetics are not monitored for key indicators of their health status to prevent readmissions or trips to the emergency room.
One prototype medical management project involves lending personal computers to high-risk patients to assist in managing health and preventing episodes that require costly treatment. The savings in prevention are worth three to five times the cost of the loaned PC.
This is where healthcare has the potential to significantly drive costs out of its operations.
Effective medical management solutions delivered through the Internet are still four to six years away. But healthcare executives should be establishing a solid Internet infrastructure and gaining experience with other Internet transaction solutions to prepare for these emerging management capabilities.
Healthcare organizations that successfully implement medical management programs will have significant first-mover market advantages from which competitors may not be able to recover.
Technology bonus. Advancing Internet technology is having a great impact on the progress of e-healthcare, and it's only the beginning:
* Major increases in "bandwidth," or the capacity of Internet connections to handle high volumes of data at high speed, are just around the corner for many consumers and small practices.
* Wireless connections to the Internet are becoming more commonplace and, combined with "micro-browsers" in digital mobile phones, are beginning to open new possibilities for monitoring patients and connecting doctors to the latest information on their patients.
* XML promises to be the universal language to express exchanges of information between partners in the healthcare value chain.
* Falling prices and growing experience with security technologies, such as public key infrastructures, are helping to make exchanges with those partners secure.
* A similar phenomenon in the pricing and adoption of so-called "firewall" appliances -- which protect the privacy of data -- promises to make continuous connection to the Internet a safer proposition for small healthcare organizations, including individual physician practices.
Executives must understand that while the Internet as a medium is mature, the Internet-based products currently available are immature and evolving. But the evolution is happening very quickly, and stable and mature product portfolios will be available within five years.
The Internet will enable healthcare organizations to produce tangible cost reductions in their operations and services. Healthcare executives cannot sit on the sidelines or take a risk-averse approach. They must compile the necessary experience by implementing low-risk initiatives such as links to payers. The easily measurable metrics that these initial projects provide can be used to extend business-to-business and business-to-consumer capabilities in their markets.
Michael Davis and Jim Klein are research directors with the healthcare division of GartnerGroup, a Stamford, Conn.-based information technology research, analysis and consulting company.