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The Paper shuffle:
What is it really Costing You?

    executive summary
    Despite a relentless rise in premiums well beyond the rate of inflation in the last
    decade, the return for the money spent on health plans is not resulting in better service
    or better coverage for members. Health plans are facing unprecedented pressure
    to deliver new value that is defined in terms of lowering medical costs, decreasing
    administrative waste, and improving the medical outcomes of the members they serve.
    However, inefficient, paper-based administrative processes carried over from the last
    decade threaten the future success of health plans—they can no longer afford to base
    their profits on premium hikes.

    This paper highlights an exclusive Pivotal CRM Web event in which Dr. Dennis
    Schmuland, Global Industry Manager for Health Plans at Microsoft, and David Self,
    General Manager of Healthcare Solutions with the Pivotal CRM team, explained the
    real, practical advantages healthcare payer organizations can experience by using
    CRM technology to streamline and minimize paper-based processes.
The Market Expects More from                                                    Future Profit Sources for
Health Plans                                                                    Healthplans
It’s becoming clearer every day that today’s market                             So what are the implications for health plans if the market
demands more value from health plans. Why? Because                              demands more value from them? They can no longer
stakeholders realize that, despite a relentless rise in                         afford to base their profits on premium hikes. Future
premiums well beyond the rate of inflation in the last                          profits must come from the following:
decade, the return for the money spent on health plans
                                                                                •	 Improving productivity
is not resulting in better service or better coverage.
Consider these facts:                                                           •	 Enhancing decision making
•	 The United States still spends more on healthcare—                           •	 Offering superior customer service
   in both real dollars and as a percentage of GDP—                             •	 Increasing retention rates
   than any other nation in the world.1
                                                                                •	 Ensuring healthier members
•	 Healthcare costs now constitute 14.9% GDP; on track
                                                                                •	 Establishing better medical outcomes
   to hit 18.4% by 2013.2
•	 While the United States ranks number one in the world                        This, we believe, is the emerging new economy
   for healthcare spending ($1.7 trillion), it ranks only 48th                  for healthcare. The shift in market demand toward new
   in life expectancy.3                                                         value means that the inefficient paper-based processes
                                                                                carried over from the last decade now present a signifi-
Employers and consumers who purchase healthcare ben-                            cant threat to the future success of health plans faced
efits in the United States see a widening gap between the                       with adopting consumer-focused business models.
high costs of healthcare benefits and the results they’re
getting in return for their healthcare dollar investments.                      Amazingly, 90% of the 30 billion healthcare transactions
                                                                                that take place each year are still conducted by phone,
And when it comes to customer service, employers and                            paper, or fax. Through the last 10 years, moreover,
consumers seldom experience the same or better level                            administrative costs have not dropped significantly. Most
of service—both online and offline—that they’ve come to                         of these administrative costs arise from manual, inefficient
expect from the travel, retail, and banking industries.                         paper and phone based processes that have yet to be
As a result, health plans in this decade are facing
unprecedented pressure to deliver new value that is
defined in terms of lowering medical costs, decreasing                          The Threats Posed by
administrative waste, and improving the medical out-
comes of the members they serve.                                                Administrative Inefficiency
Administrative process automation is now assumed; it is                         Inefficient administrative processes that have been carried
a sunk cost of doing business that is no longer optional—                       over from the last decade threaten the future success
it is a requirement for health plans that hope to compete                       of health plans. These manually intensive tasks rely on
successfully in meeting the demands of the market.                              paper-based communication. As a result, they:
                                                                                •	 Cost Too Much – administrative inefficiencies are labor
Health plans that figure out how to automate their busi-
                                                                                   intense and introduce needless delays; these costs
ness processes and focus on customer needs, rather
                                                                                   effectively consume the capital and labor resources that
than pure cost avoidance, will gain market share and
                                                                                   health plans need to meet new business demands and
increase profits. However, these new profits will not come
                                                                                   deliver new products to market.
from premium increases; they will come from improved
customer acquisition, increased retention rates, and the                        •	 impede Growth – administrative inefficiencies rob
ability to provide new, consumer-friendly products to the                          health plans of the capital they need to deliver new
market more quickly than the competition.                                          value efficiently: better medical outcomes and healthier
                                                                                   members at lower costs.
By reducing administrative drag, health plans that become
                                                                                •	 increase service Failures – administrative
more competitive will also free more capital to support
                                                                                   inefficiencies increase service failures because
initiatives designed to improve member health and
                                                                                   paper-based processes are far more prone to error. In
medical outcomes, closing the gap between high costs
                                                                                   contrast, automated processes can be programmed
of U.S. healthcare benefits and the return on healthcare
                                                                                   to catch and correct errors, which prevents delays and
premiums in terms of life expectancy, customer service,
and healthier members.

1. For details see, “Building a Better Health Care System: Specifications for Reform”. The National Coalition on Health Care, 2004.
2. For details see, “Now Can We Talk About Health Care?” Clinton, Hillary Rodham, New York Times, April 18, 2004.
3. For details see, “Now Can We Talk About Health Care?” Clinton, Hillary Rodham, New York Times, April 18, 2004.

                                                                                                                             Pivotal CRM | Business Paper   1
Is Going Paperless Realistic?                                    You can quantify value by first measuring, and then
                                                                 reducing the number of times employees have to touch
Is it realistic to believe that paper can be completely          or handle paper for every transaction, whether it’s a new
eliminated from all of the business processes taking             application or an enrollment form. In reducing touches,
place in healthcare organizations? Of course not.                you reduce costs significantly by becoming more efficient
                                                                 and effective. Health plans that learn how to improve
One reason why paper can’t be eliminated quite yet is            their internal processes and productivity by streamlining
the requirement for a physical signature on business             paper-based transactions will outperform competitors,
documents. To many legal departments, and in many                gain market share by reducing churn, and retain more
states, a “wet” signature is required to authorize a             employees and members.
contractual agreement. Federal legislation, however,
does allow electronic signatures in many transactions,
so it is increasingly possible that a company’s policy—          Unnecessary Paper Touches
rather than state or federal law—can be the barrier
to eliminating requirements for a physical signature.            Cause Delays
                                                                 In a very simple example, let’s assume that five
We’re a long way away from eliminating paper, but there
                                                                 stakeholders are usually involved every time a new
are some compelling ways to address this issue today in
                                                                 member joins and is enrolled in a health plan. The broker,
order to become more efficient and effective in the future.
                                                                 sales executive, sales assistant, and underwriter move the
Intuitively, most of us would agree that excessive volumes       group or individual along the enrollment process—from
of paper related to any business process creates                 suspect to prospect to member. The process is presented
problems. Paper is expensive. Paper takes up a lot of            visually in the diagram below.
space. Paper can get lost. And most importantly for health
                                                                 The prospective member fills out an application and gives
plans, paper makes automating business processes more
                                                                 it to the broker, who passes it on to the sales executive,
difficult and inefficient because it must be transferred
                                                                 who hands it off to the sales administrator. Three touches
physically—from the member, to the broker, to the sales
                                                                 into the transaction, nobody has yet done anything to
rep, to the underwriter, and so on.
                                                                 actually enroll the prospective member.
The obvious question to the idea of slowly eliminating
                                                                 As part of the enrollment process, it’s likely that the
paper from a paper-intensive process is this: if we know
                                                                 sales administrator will enter information manually about
that paper can’t be eliminated completely, how can
                                                                 the prospective member, which is then passed along to
we quantify the value of incrementally decreasing our
                                                                 the underwriter.
dependency on it?

There is an answer.





                    UNDERWRITER                  4

                                                              SALES ADMIN

Diagram 1: Information Flow From Member to Underwriter

                                                                                                    Pivotal CRM | Business Paper   2
The underwriter’s role is to evaluate the prospective               As a result, the underwriter has to set the application
member’s information, classify it according to a rating             aside until the information can be obtained, which means
system, and then determine how the prospective member               that no business has been transacted.
qualifies for a given benefit plan relative to any potential
risk involved and at what price. It is at this stage of the         Now the process gets bogged down. The underwriter
process where time-consuming and costly complications               passes the form back to the sales administrator, who
are likely to begin—and escalate.                                   sends it back to the broker, who actively pursues the
                                                                    prospect to get the missing information. Once the
In this example, we introduce a common problem: the                 information is obtained, the broker takes the form back
prospect forgot to enter required information on the form,          to the sales administrator, who passes it back to the
something as small as the date of birth of a dependent.             underwriter. The process takes at least ten touches,
                                                                    which is illustrated in the following diagram.




                                RECEIVED                        9




             UNDERWRITER                                                                              SALES

                                                               SALES ADMIN
Diagram 2: Information Flow Back to Member

Let’s expand this example further and say that this                 Future profits or increases in operating margins cannot
application is for a small group, with ten employees                be driven simply by increasing premiums anymore. The
and a couple of dependents per employee for a total                 market will not tolerate it. Health plans must find better
of about 30 individual applicants. Here, with a single              ways of conducting business every day.
application, with one missing piece of information, the
sales administrator cannot complete the transaction
and must touch the application at least twice without               Quantifying Employee Costs
processing it. During this delay, which could take days,            To better understand the implications of being a more
the prospective member is free to consider applying                 efficient and effective healthcare payer, it’s good to start
for competing health plans.                                         by quantifying employee costs.
This is an inefficient—and costly—way to conduct                    Consider the cost of an administrative employee; a
business. In the preceding example only one piece                   fully-burdened, full-time employee (FTE). How much does
of information is missing. The problem can grow                     it cost your company to have an employee at a desk
exponentially if other mistakes occur during the                    touching paper? This includes the employee’s salary,
application process.                                                overhead, and benefits.

                                                                                                         Pivotal CRM | Business Paper   3
Once you calculate the cost of your administrative
employees, calculate the cost of your sales employees,
                                                                 Quantifying Transaction Costs
and then your underwriting employees. These numbers              The next step in quantifying the value of streamlining a
provide a framework for quantifying the total employee           paper-intensive process begins by measuring transaction
cost of touching paper.                                          costs. The following diagram highlights some benchmark
                                                                 numbers to use when considering these costs. While
                                                                 there are many “flavors” of determining transaction costs
                                                                 throughout the healthcare industry, the figures here offer a
                                                                 conservative starting point.

                               = $30                          = $10                             = $0.25

Diagram 3: Transaction Costs

For our example, a paper transaction costs approximately         process inside the average healthcare organization.
$30, a telephone costs approximately $10, and an                 In making these calculations, consider how they might
electronic transaction (for example, entering someone's          be applied to improve the processes in your organization.
information directly to the underwriting division on
an electronic form) is 25 cents. These are dramatic              The following basic equation can be used to calculate
differences that can have a huge impact on both your             transaction costs:
costs and your profits. To read more about the costs
                                                                 (Touches x Time) x Cost = Full Time employee Value
associated with web-based transactions visit: www.
healthcare-informatics.com/issues/2000/06_00/dejesus.            For the purpose of the following discussion, assume
htm                                                              that stakeholders along the application and enrollment
                                                                 process touch a small group application approximately
Calculating the Total Cost of                                    eight times in total. In the preceding example, remember
                                                                 that it took 10 touches just to get one piece of missing
Enrolling New Members                                            information, so eight touches is conservative. Let’s also
                                                                 assume that one touch takes approximately 15 minutes.
It’s worthwhile to see if someone in your organization has       Using these numbers, if an administrative employee
already quantified the actual cost of a transaction in your      processes 50 applications per month, the costs of a
company today using similar numbers. It’s likely that the        fully burdened employee will be $50,000—a reasonable
results would be close to the figures used above. What           estimate. The calculation looks like this:
would this potentially mean for your organization?
                                                                 (8 touches x 15 minutes) x 50 applications = 6,000
Once you determine how often an employee touches                 minutes = 100 hrs = 12.5 days
an application, you then need to find out how many
applications that person processes each month.                   An average employee works approximately 22 days per
While it’s relatively easy to determine the number of            month, or 250 work days per year.
applications processed per month, it’s more difficult to
calculate exactly how many touches are required for each         In this example, the administrative employee costs $200
transaction. The overriding fact when dealing with paper,        per day. The calculation for full time employee value looks
however, is that you’re often going to end up with missing       like this:
information, or illegible information at some point.
                                                                 Time x Cost = (12.5 days x $200) = $2,500
In the following calculations, we’ll build on earlier
examples to determine the total costs of a manual paper          For the average administrative employee to process 50
                                                                 applications, the cost is $2,500.

                                                                                                    Pivotal CRM | Business Paper   4
Reducing Costs by Reducing                                                       of your enrollment divisions. Think about the implications
                                                                                 of reducing the number of times all of these people
Touches                                                                          have to touch paper applications—enrollment forms,
                                                                                 applications, statements—just to quote and enroll
The preceding calculations provide a general idea of                             new members.
enrollment costs for the average healthcare organization.
In the equations we used, what would the implications                            The savings add up quickly. Suddenly, it is possible
be if you could reduce the number of times that your                             to quantify the value of investing in smart technology.
administrative employees touch applications by half—                             However, let’s keep in mind that investing in technology is
from eight times to four times? Consider the equations                           not only justified by cost savings but also by productivity
again:                                                                           gains. Things like time savings, the ability to redeploy
                                                                                 employees to more value-added duties and increased
(4 touches x 15 minutes) x 50 applications = 3,000                               customer satisfaction are important when considering
minutes = 50 hours = 6.25 days                                                   your return on investment.
Time x Cost = (6.25 days x $200) = $1,250.00

For every 50 applications processed, the time saved
                                                                                 Building Value by Building
would be 6.25 days and the costs saved would be                                  Relationships
$1,250.00. Remember, this reflects the savings for just
one administrative employee. Consider the same type of                           The following diagram illustrates exactly what occurs
savings with sales executives and underwriters across all                        in healthcare payer organizations when an individual
                                                                                 becomes a prospective member. The individual is usually
                                                                                 identified by a broker or through a marketing campaign.

                              SUSPECT        PROSPECT                PROPOSAL


                                                  R E N E WA L

                                                                                                        M AT E R I A L S

                                                           E D U C AT I O N &
                                                          I N F O R M AT I O N


Diagram 4: The Relationship Development Process

The broker solicits the prospective business and then                            As the prospect goes through the enrollment process,
approaches a handful of companies for proposals to                               he or she eventually becomes a member who is entitled
evaluate their healthcare coverage. At this point the                            to receive member materials, such as summary plan
person becomes a prospect.                                                       descriptions, benefits summaries, benefits booklets,
                                                                                 membership cards, and so on.
The sales executive then becomes involved with the
broker and they begin gathering information from the new                         Once members begin to use their health coverage—
prospect. The information comes into the company and a                           they visit a physician, they go to the dentist, they visit
proposal is generated.                                                           the emergency room—they are officially accessing their
                                                                                 health benefits. Once members access benefits, they
If the rates are favorable and the coverage is what                              have claims. They have a reason to call your customer
the prospect is looking for, the prospect begins the                             service representatives or your nursing staff. At this point
enrollment process.                                                              your organization pushes information out to members
                                                                                 and pulls information in from their interactions with you.
                                                                                 This evolving relationship is characterized by education
                                                                                 and information.

                                                                                                                           Pivotal CRM | Business Paper   5
When your relationship with the new group reaches the
11th month, a renewal usually takes place.
                                                                 Eventually, all healthcare organizations will have to
Unfortunately, this is the time when healthcare                  compete on the basis of improved efficiency and better
organizations go back to their members and say “we               customer service. The current system is simply being
value your business so much that we’re going to raise            crushed under its own weight. Those that move early will
your rates by 25%!” Sounds facetious. However, this              have the advantage of improved outcomes, increased
tends to be the reality in today’s market.                       market share, growing membership, and an increasing
                                                                 bottom line. When you streamline a paper intensive
If you haven’t built value during the time an individual
                                                                 process, you receive all of these benefits, but you also
has progressed from being a suspect to a prospect to
                                                                 receive something else: improved employee morale.
a member, by the time the renewal comes up there is a
                                                                 When people are more efficient and effective, doing less
much higher probability of losing the member. This means
                                                                 “busy work,” it has a powerful impact on how they feel
losing the opportunity to recoup the cost of sales, losing
                                                                 about their jobs.
market share, and allowing your competitors to get into
your book of business.                                           Specifically, this offers the following benefits to healthcare
Improving Customer Service to                                    •	 Paper and manual touches are reduced, which
                                                                    streamlines paper-intensive processes.
Increase Loyalty                                                 •	 Membership increases—members receive information
When a health plan raises rates continuously without                more quickly and more accurately, with better outcomes
improving service, the first members to leave are typically         than your competitors.
those who are healthier risks. They have more options.           •	 Member data across sales, underwriting, enrollment,
So during the first 11 months of this cycle, it is critical to      and renewals is unified. Critical areas such as new
build value. And smart technology tailored for healthcare           business enrollments or renewals become more visible.
payers allows you to build this kind of value. The best way
to do this is by gathering information early and putting         •	 Members get better service—it’s faster and more
it into a single database where everyone can access it              efficient, which is a competitive advantage. Happy
to get a complete picture of the individual’s needs and             members are more likely to renew their health plans.
preferences. For example, putting renewal alerts into            •	 Your employees are happier and are working smarter.
place well before the 11th month provide employees with             They’re able to think more about critical components of
visibility, while building your competitive edge before             their job.
renewal season begins.
                                                                 •	 Time and administrative dollars are saved—the time
When the prospect becomes a member, he or she is                    and costs saved are even higher for underwriters.
treated uniquely—no matter what the touch point with your           Putting underwriters in control of electronic information
company is. Suddenly you have a very complete picture,              enables them to spend time more effectively, which
a 360-degree view of your members. The better the service           improves underwriting outcomes.
is, the less likely it is that someone will leave, even though   •	 Brokers are more loyal because they are given the
rates may have to increase from time to time.                       right tools for success. They are able to process more
                                                                    business and reduce costs inside the brokerage as
Price sensitivity in the marketplace is something we all            well.
have to live with, but poor customer service is likely to
drive people away. Great customer service builds loyalty         •	 Management has powerful reporting tools that improve
and increases the likelihood that members will stay                 decision making.
with your organization when rates increase. This is also         A paperless system allows you to capture information in
important to your broker distribution channel because they       a single database, extract that information in standard
want to build their book of business with reliable carriers.     formats, and present it in management reports that
                                                                 make everyone’s lives easier. Critical areas such as new
You can create an outstanding customer experience by
                                                                 business enrollment, renewals, who you’re losing, and
giving everyone inside your company the ability to know
                                                                 why you’re losing them become more visible to your
exactly what individual members prefer and expect from
                                                                 executives and management team. Strong management
your organization.
                                                                 reports ultimately improve decision making.

                                                                                                      Pivotal CRM | Business Paper   6
The examples in this paper highlight ways of giving                       With operations around the world and over 1,700
everyone in your organization a unified, 360-degree view                  customers, including healthcare organizations such as
of your members. This is a simple thing to say, but it is                 Premera Blue Cross, WellCare, and Blue Cross Blue
not simple to do. However, once employees have a more                     Shield of Michigan, the Pivotal CRM team offers industry-
complete view of members, everyone in the company                         specific CRM solutions tailored for vertical markets. In
has a better understanding of the overall business, the                   particular, our healthcare solutions are tailored specifically
entire membership, and the information required to boost                  for the healthcare insurance industry.
revenue growth. By taking advantage of smart technology,
your organization can begin to deliver more value to your                 Our simple, pragmatic solution can also be extended
members without increasing costs.                                         easily, which enables health plans to integrate Pivotal
                                                                          CRM solutions into their larger strategic CRM vision for
                                                                          the enterprise. By driving costs, delays, and errors out
Pivotal CRM and Microsoft’s                                               of the selling process, and by improving the broker and
                                                                          member experience, Pivotal CRM solutions free up scarce
Healthplan Blueprint                                                      resources to deliver the value that purchasers demand:
The Pivotal CRM team has been around since 1994 and                       better outcomes, service excellence, and healthier
has proven its competency in the best implementation of                   members.
Microsoft technologies. Vendors such as Microsoft have
developed their healthcare solutions around the specific
issues healthcare organizations face today. In particular,
                                                                          About the Speakers
Microsoft’s blueprint for health plans enables healthcare                 Dennis schmuland MD FAAFP, Global Industry Manager
organizations to close the gap between the value that                     for Health Plans, is Microsoft’s senior executive and chief
the healthcare system provides and the value people                       strategist responsible for driving Microsoft’s thought
need—quickly and cost-effectively. The blueprint includes                 leadership and strategy for the health insurance industry
three elements:                                                           within the 5-10 year horizon.
•	 An agile organization that uses the most familiar                      David self, General Manager of Healthcare Solutions
   productivity and collaboration software that adapts to                 with the Pivotal CRM team, is responsible for our vertical
   the way people and teams work.                                         operations in the healthcare insurance market, including
•	 Customer-focused service framework that extends the                    sales, marketing, and research & development. He has
   call center across every channel—such as self-service                  more than 15 years of experience working in, and with,
   portals, speech recognition and IVR, and the connected                 healthcare payers and the technologies specifically
   home and connected devices—to ensure that custom-                      designed to address their requirements.
   ers know they are the highest priority.
•	 An end-to-end platform that enables plans to deliver
   actionable knowledge anywhere to empower brokers,
   employers, and consumers to make better informed
   and more timely decisions.
Through partners like the Pivotal CRM team, Microsoft
is committed to helping health plans deliver more value
to every constituent faster, with fewer resources, and
with less complexity. In becoming a gold-level certified
Microsoft partner, the Pivotal CRM solution passed
independent compatibility and benchmarking tests,
which place it in the top one percent of all vendors in
the Microsoft partner program. The Pivotal CRM team
maintains the training requirements that keep its products
current with the latest technologies.

For more information or a complete list of our worldwide offices, please visit www.pivotal.com.
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