Tired of watching physicians shuffling folders and scribbling on prescription pads, Leonard Schaeffer decided it was time to jump-start the medical community's move into the digital age.
In January, the chairman and chief executive officer of health insurance giant WellPoint Health Networks launched a bold initiative to get computers into the hands of physicians. Under the program, the nation's second-largest insurer supplied $42 million worth of desktop and hand-held computers to 20,000 of its busiest network physicians and secured substantial discounts on the equipment for its 170,000 other contracting doctors.
The PCs help physicians file claims via the Internet, eliminating heaps of paperwork. The handheld devices submit prescriptions to pharmacists electronically and red-flag potential drug interactions, reducing the risk of human error. Both can be used by physicians for all their patients -- many of whom are covered by other insurers.
Instead of seeking a direct return on investment, Schaeffer says the program was designed to boost the quality and efficiency of healthcare industrywide and to create the critical mass of computer-savvy physicians needed to spur more rapid adoption of the technology. So far, just under one-third of doctors use e-prescription devices regularly, even though studies show broad use of such tools could prevent 95% of adverse drug events.
"The thinking was: If we're really going to bring healthcare into the 21st century, we have to stop talking about it and start doing something," Schaeffer says. "We said, ?Rather than whine, wish and hope for change, we can do something huge to embarrass, cajole or prod the healthcare community forward.' ? We're big enough at this point where we have to take those kinds of responsibilities and can make those kinds of investments."
It's for this commitment to advancing healthcare technology -- both within and outside WellPoint -- that Schaeffer was named a recipient of the 2004 Modern Healthcare/HIMSS CEO IT Achievement Award. He is the first insurance industry executive to win the honor, which has been presented to five healthcare leaders over the past two years.
"This is a classic example of a company leading with its beliefs and willing to invest in its beliefs," says Larry Grandia, chief technology officer at Premier, San Diego, and one of the award judges. "Their willingness to fund PCs as a front-end investment shows you just how committed they are to healthcare technology."
Commitment and leadership
Indeed, information technology has played a central role in WellPoint's transformation from a nearly insolvent health plan in 1986 to what will become the nation's largest health insurer when it completes its merger with Anthem later this year. The company currently covers 15 million members primarily through Blue Cross and Blue Shield plans in California, Georgia, Missouri and Wisconsin.
Schaeffer envisions a future where the healthcare industry provides service with the same automation and seamless interconnectivity as the banking industry. "You used to have to go to your local branch with your bank book ? Now you can withdraw money from virtually any ATM nationwide and access your account information at any time," the 58-year-old executive says. "Healthcare has to move toward that same functionality."
WellPoint put its money where its mouth is in 2001, when it began plowing more than $400 million annually into cutting-edge technologies to improve customer service, strengthen communication with providers, cut administrative costs and establish itself as what Schaeffer calls an industry "infomediary."
The massive undertaking has centered on building a single, unified information system that allows the company's numerous business units to share financial, benefit, provider and member data through common applications. Previously, WellPoint ran a hodgepodge of disparate computer systems that stored records in incompatible forms, stalling communication between departments and making even the most basic system upgrades a chore.
"Before, every time we made a change, we had to do it 10 different times. Now we can do it once across the entire enterprise," says Anil Kottoor, WellPoint's chief application development officer.
The overhaul, for instance, has helped WellPoint become the first national insurer to complete the enormous task of replacing every member's Social Security number with a discreet identifier. The new numbers are expected to reduce the risk of fraud while helping the company and its physicians comply with new federal privacy laws.
Significantly, Schaeffer looked outside the healthcare industry for inspiration, studying financial-services firms and other customer-focused companies such as Federal Express. He decided that if WellPoint were to truly be successful, its operations would have to rival those of not other insurers but of top companies in every industry.
"When customers (evaluate) their insurer's service, they compare it to the best customer service they've received from banks, airlines, phone companies, etceteras, not other insurers," Schaeffer says. "The healthcare industry does a very poor job at customer service because it's still comparing itself to itself."
To head up the project, Schaeffer hired Ron Ponder as chief information officer. Ponder, who declined repeated requests for interviews, is known for having designed FedEx's highly successful nationwide package-tracking system and spearheading major technology overhauls at AT&T and Sprint. The two then set out to assemble a top team of IT experts, filling the ranks of WellPoint's management with technicians from such companies as Hewlett-Packard, General Electric and BellSouth.
The new infrastructure is helping WellPoint improve customer service by speeding up response times. Because its entire customer-support team now shares the same integrated system, a member can get answers to any number of questions from a single representative, instead of being transferred from department to department. The setup also allows representatives at, say, the Georgia Blues to handle overflow if call volume becomes too heavy at the company's Blue Cross of California unit, Kottoor says.
Meanwhile, 45% of customer calls are now being completed automatically through a revamped interactive voice response system, with speech recognition in both English and Spanish. That's up from just 11% in 2003.
The new system is also helping to streamline WellPoint's reimbursement process. In the past, doctors were often forced to re-file the same claim several times because the insurer's far-flung computer systems would catch different omissions or coding errors at various junctures. Now all errors are usually detected on the claim's first pass.
"We spend a lot of time on strategic planning ? and a big chunk of that is IT," says David Helwig, president and CEO of Blue Cross of California. "Leonard is always asking, ?How can we use IT to improve service? How can we use it to change the game?' "
Ironically, Schaeffer graduated in 1969 with an economics degree from Princeton University -- which at the time prided itself as liberal arts college where "gentlemen scholars" weren't taught the technical side of things.
But invariably, his colleagues say he quickly absorbs what he needs to know and can readily conceptualize even the most complex technologies. "You'd be amazed," Kottoor says. "When we do IT presentations for Wall Street investors and analysts, he gets up there and handles most of it himself. Some people don't get it when it comes to technology; he's one of those people who really do."
Premier's Grandia, who has heard Schaeffer speak at a number of industry conferences, agrees. "He is extremely good at articulating the value of the technology and the benefits achieved from investing in it," he says.
Schaeffer developed his healthcare chops under President Carter as head of the Health Care Financing Administration, now the CMS. Then only 33, the Evanston, Ill., native had already served as state budget director for Illinois and as a vice president of Citibank. He later moved on to head up Group Health Inc. of Minnesota
When Schaeffer took over WellPoint, then called Blue Cross of California, the company was losing $165 million a year and struggling with a disastrous IT conversion. "Things were so botched up that we didn't even know how many claims we were paying in a day or month," Schaeffer recalls with frustration. "I arrived on Feb. 15 (1986), and four months later discovered we were charging discount rates but paying at nondiscount rates."
One of Schaeffer's first orders of business was to create an online, real-time information system where all of WellPoint's performance goals and measures are stored so managers can regularly track the progress of each business unit. "We have annual, quarterly, monthly and sometimes daily performance metrics, so everyone knows where they stand at any given time," he says. "It creates positive peer pressure."
Schaeffer also reorganized WellPoint's management so that the CIO reports directly to him instead of the chief financial officer. Ponder now takes part in all strategic planning, financial and board meetings so that information technology is part of every key business decision.
In addition, Schaeffer formed an IT governance committee, which includes the presidents of each subsidiary as well as representatives from the medical management, finance, actuarial and strategic planning departments. The group meets every month to prioritize IT projects and share updates on the integration progress.
Schaeffer insists that all IT projects need to be broken down into manageable, six-month phases, Helwig says.
"We've all heard of health insurers launching these massive, multiyear IT projects, and 99 times out of 100 they fail," he says. "Our focus (as a committee) is on what gets implemented within six months, then what gets implemented in the next six months, rather than looking for a big bang down the road."
These days, WellPoint is widely regarded as one of the nation's best-run health insurers.
It was recently named Fortune magazine's most admired healthcare company for a sixth straight year and found a place on Forbes' 2004 Platinum 400 Honor Roll of the 25 best-managed companies in America. Schaeffer himself was named one of Modern Healthcare's "100 Most Powerful People in Healthcare" (he came in at No. 93) last year and received the UCLA Anderson School of Management's 2003 Information Systems Associate Executive Leadership Award.
Since 1999, WellPoint has more than doubled its membership and nearly tripled both its revenue and profits. Last year, it reported record earnings of $935 million, a 33% increase over 2002, on $20.4 billion in net revenue.
The company has also whittled down its expenses over the years with the launch of several new technologies, including an in-house electronic claims-processing system and a self-service Internet site for members.
Its administrative costs have fallen to 12.3% of operating revenue in 2003 from 14% in 2000 and 15.3% in 1998. And it expects to enjoy $75 million in information technology savings a year when it merges with Anthem.
Roughly 64% of WellPoint's more than 100 million annual claims are now received electronically and 56.4% are processed without any manual intervention. That's up from 61% and 47.8%, respectively, at the end of 2002. And Schaeffer expects those numbers to improve in coming years as its physician-computer initiative takes hold. "The cost to process a paper claim is roughly 2.5 times the cost to process an electronic claim, so clearly there are significant savings to be realized as we help get the right equipment into physicians' hands," he says.
Reshaping the industry
Electronic claims submission also makes for more timely data to analyze medical cost trends -- a critical tool for health insurers as they begin to take on a central role in reshaping the healthcare industry, Schaeffer says.
Insurers, he says, are poised to emerge as healthcare "infomediaries" that collect and interpret mountains of data, then feed it back to consumers and providers so they can make better healthcare decisions. In Schaeffer's view, a database that constantly collects information from all over the country would be able to tell providers what the best treatment is for a specific illness and tell patients where the best place is to have that procedure performed. In turn, insurers could price their policies more effectively, ultimately reining in healthcare inflation.
"We want to drive evidence-based medicine," he says.
That was a major reason WellPoint agreed to merge with Anthem: It was a chance to create an insurer with $36 billion in annual revenue -- the kind of money needed to make such a complex database a reality. The combined company would have access to healthcare data spanning 27 million members and hundred of thousands of providers nationwide.
WellPoint already meticulously tracks whatever information it can get its hands on, from membership and claims data to clinical data from its disease-management and pay-for-performance programs. And it's finding ways to feed that information back to consumers. The company, for example, has created a Web site where members can easily compare hospitals in their communities by such measures as the number of procedures performed, their complication and infection rates and the staffing levels within their intensive-care units.
"There's a saying here: If we can't count it, it doesn't count," Kottoor says.
Meanwhile, WellPoint has been working to share its IT knowledge and resources with other healthcare leaders.
Schaeffer, for instance, is the founder and former chairman of the Council for Affordable Quality Healthcare, a consortium formed in 1999 to champion the use of technology to simplify administrative processes industrywide. One of the group's main initiatives, Formulary DataSource, gives providers online access to insurers' formularies, allowing them to quickly determine if a specific drug is covered under a patient's plan.
Schaeffer and WellPoint were also founding members of MedUnite, a joint venture formed in 2000 by the nation's seven largest health insurers to automate transactions between payers and providers. With a combined investment of $75 million, the companies set out to create and operate a standardized Web portal to handle claims processing, referrals and eligibility verification electronically. But physicians were slow to sign up, and the company was ultimately sold for $23.4 million in January 2003.
In many respects, WellPoint's physician-computer initiative has picked up where MedUnite left off -- by getting physicians to incorporate the technology into their day-to-day operations.
"The healthcare industry is at a tipping point, where we're right on the verge of seeing rapid, widespread adoption of information technology," Grandia says. "WellPoint is trying to give the industry that final push."
WellPoint Health Networks
Headquarters: Thousand Oaks, Calif.
Data as of 2003
Net revenue: $20.4 billion
Operating income: $1.65 billion, or 8.2% margin
Net income: $935.2 million
Annual information technology budget: $400 million
Total employees in information technology department: 1,600
Membership: 15 million