Operational Efficiency – A Journey, Not a Destination

Operational efficiency sits on the horizon of U.S. healthcare like the Emerald City, glistening and beckoning, full of promise. The PPACA Medical Loss Ratio mandate both rewards success and penalizes failure. Employers demand it in contracts and penalties. Consumers seek it in purchasing and transaction interactions. Health plans view it as potential differentiator, cost containment tactic and future business strategy. Operational efficiency will attract new business, reduce costs and create revenue for new business investments. The minute the industry achieves operational efficiency finally, all will be well.

In reality, of course, just like life – operational efficiency is a journey, not a destination. Toyota knew that in the 70s, continuous improvement championed the process approach in the 80s and early 90s. And, healthcare briefly flirted with the concept. But in the past 10-15 years, the “silver bullet” mentality has dominated. The next new consumer engagement, the next new technology, the next new provider reimbursement strategy will miraculously rescue the industry from inefficiency and ineffectiveness.

Although successes have occurred, it is not hard to find strong evidence of continuing industry operational inefficiency that simply does not exist in other notable retail and financial services industries. Patients continue to spend exasperating amounts of time and energy researching and correcting medical information and billing statements. The American Medical Association’s National Health Insurance Report Card for 2013 found that almost one in five of all medical claims (19.3%) processed by the nation’s largest commercial health insurers is inaccurate. The report card found a 2% rise in claims processing errors over last year’s report card, which added “an estimated $1.5 billion in unnecessary administrative costs to the health system,” according to the AMA. The doctors' group estimates that if all health insurers were able to eliminate all claim payment errors, the health care system would save $17 billion a year. Gartner research suggests that more than half of US health plans still operate at auto-adjudication rates of less than 80%.

So, as the industry calms itself after the regulatory distractions of the individual market execution, experimentation with ACO strategies and the on-again, off-again ICD-10 timeline, the notion of efficiency as a journey, rather than an end point is seeping back into the healthcare conversation. What is driving new discussion, even enthusiasm, is the awareness that the super highway may finally have been built to support the journey – the healthcare industry’s Yellow Brick Road. Legacy technologies, hard-coded, poorly integrated and data-trapped, made for bumpy and expensive travel, and created little enthusiasm for continuing the journey once that hard fought milestone of implementation was achieved. Business and business processes remained static, even as the market changed. The problem is of course that technology and business needs rarely aligned to begin with, not to mention after the multi-year implementation experience. Huge costs aside, the big bang approach simply does not work in a continuously changing market. This is largely because the endpoint keeps changing.

What we need are technologies and deployments that support the new age of continuous and adaptive improvement in health care processes and efficiency. On the top of the 21st century selection criteria list should be new technologies – rules engines, business process management technologies, social and analytics – because all provide huge, if not profound, improvements to locked legacy technologies and processes and enable performance-driven modernization. Implemented thoughtfully and with good organizational alignment, these technologies enable health plans to finally embrace change in a way that can be reasonably consumed and customized to individual business priorities. Agile development and cloud delivery further extend continuous improvement to technology, deployment and cost management.

Furthermore, continuous improvement is not just an internal or customer-centric healthcare strategy. The aforementioned AMA findings reveal how new technologies also provide the opportunity to think of continuous improvements and agile adoption, not just within a department, a business line or a health plan, but across the healthcare spectrum. Impact on industry partners is huge.

Dr. Paul Kenagy calls this adaptive innovation and a key success factor in our rapidly changing health care environment. This topic is something we’ll explore further (following on Dr. Kenagy’s talk at Pega’s Collaborative Healthcare Summit last year), as we focus in on performance-driven modernization at Pega’s upcoming 4th annual Collaborative Healthcare Summit, being held in Cambridge, Mass., on October 27 – 28. Join us there for an extended discussion on innovative technologies, agility and making continuous improvement a reality by leveraging the adaptive healthcare platform. You can register to attend here.