Byline: Laura B. Benko
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 hand-held 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 technol- ogy officer at Premier, 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.''
Indeed, IT 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.
Commitment and leadership
Schaeffer envisions a future in which the healthcare industry provides service with the same automation and seamless interconnectivity as banking. "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 the year 2001, when it began plowing more than $400 mil- lion annually into cutting- edge technologies that were aimed at improving customer service, strengthening com-munication with providers, cutting administrative costs and establishing 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 privacy laws.
Significantly, Schaeffer looked outside the healthcare industry for inspiration, studying financial-services firms and other customer-focused companies such as Federal Express Corp. He decided that if WellPoint was 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 Corp. and Sprint Corp. 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 Co., General Electric Co. and BellSouth Corp.
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.
Elevating IT
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 that 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 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, says David Helwig, president and CEO of Blue Cross of California.
"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.''
Measurable results
These days, WellPoint is widely regarded as one of the nation's best-run health insurers.
It was recently named Fortune'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 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 21/2 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.
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.
CAPTION(S):
WellPoint's Schaeffer counts on information technology to not only improve service delivered to members but also to raise the quality of healthcare industrywide.
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